TMI Blog2014 (6) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... irection to the AO to modify the order assessing interest income as income from other sources and excluding the interest income while allowing claim of remuneration to partners – There was no infirmity in the order of the CIT(A) allowing the claim of the assessee - Decided against Revenue. Obligation to deduct TDS – Whether the treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of sec. 194C of the Act - Held that:- Following M/s. BG. Chitale Versus DCIT, Cir-1, Sangli [2010 (9) TMI 986 - ITAT PUNE] - purchase of milk was predominant factor in the transaction and not the hiring of truck to transport the same to the assessee - the predominant factor in the contract was sale of milk, the contract cannot be turned as for carrying out any work to invoke the provisions of Sec. 194C of the Act – CIT was not justified in treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of Sec. 194C of the Act without appreciating that predominant fact behind was purchase/sale of milk – Decided against Revenue. Setting of losses prior to initial AY – Calculation of deduction u/s 80IA of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri P. L. Pathade ORDER Per R. K. Panda, AM : The above appeals filed by the Revenue are directed against the common order dated 11-10-2012 of the CIT(A), Kolhapur relating to Assessment Years 206-07 to 2009-10 respectively. Since common grounds are involved in all these appeals, therefore, these were heard together and are being disposed of by this common order for the sake of convenience. ITA No.21/PN/2013 (A.Y. 2006-07) : 2. Grounds of appeal No. 1 to 3 by the Revenue reads as under : 1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in relying upon the decision of the ITAT on the issue of inclusion of interest income in book profit for the purpose of computation of salary to partners, when the ITAT's decision was not in accordance with the provisions of the I.T. Act, 1961 and precedents laid down in following cases : (i) United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 (SC) (ii) Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 227 ITR 172 (SC) (iii) South India Shipping Corporation Ltd. Vs. CIT (1999) 240 ITR 24 (Mad) (iv) Shams Tabrez ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners u/s.40(b). Thus, the grounds raised by the assessee should be allowed in its favour. 9. Respectfully following the decision given above in the appellant s own case, I hold that interest income as mentioned in paragraph 5 supra is to be included in book profit for the purposes of determining the allowable deduction of remuneration payable to partners u/s.40(b) for the years under appeal . 2.3 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 3. After hearing both the sides, we find the issue stands decided in favour of the assessee by the decision of the Tribunal in assessee s own case for A.Y. 2002-03 vide ITA No.473/PN/2009 order dated 01-09-2010 which has been followed by the Ld.CIT(A). Further, we find in A.Y. 2005-06, the Tribunal has decided the issue in favour of the assessee vide ITA No.145/PN/2008 order dt. 19-11-2010 by observing as under : 3. Having gone through the said order dt. 18.6.2010 of the Tribunal in the case of assessee, for the A.Ys. 2003-04 and 2004-05 in ITA Nos. 143 144/PN/2008, we find that under similar facts and circumstances, an identical issue has been decided by the Tribunal in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible or excessive claims relating to income to be computed under the head business which are embedded in the book profit are excluded from the base for limiting remuneration to partner. With these observations, the Tribunal remained of the view that prima facie, the legislature has not authorized exclusion of non-business receipts recorded in the P L account. Whole income of the firm under different heads is liable to be assessed in the hands of the firm and remuneration to partners debited to P L account cannot be broken down into different components, to be allocated to the income computed under different heads. We are thus of the view that when the issue was debatable in nature and one possible view on that issue has been accepted by the A.O., the learned CIT was not justified in arriving at a conclusion to invoke the provisions of section 263 of the Act that the other possible view was correct one and that adopted by the A.O was erroneous and prejudicial to the interest of revenue. In this regard, we find strength from the decisions of the Hon ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT (supra) and CIT Vs. Max India Ltd.(supra) relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order in this regard as erroneous and prejudicial to the interest of Revenue. The revisional order in question is thus set aside. The ground nos. 1 to 4 are thus allowed. 3.1 This being so and in absence of any contrary material brought to our notice against the orders of the Tribunal in assessee s own case we find no infirmity in the order of the Ld.CIT(A) allowing the claim of the assessee. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed. 4. Grounds of appeal Nos. 4 and 5 by the Revenue are as under : 4. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals), Kolhapur erred in ignoring that in terms of provisions of section 80IA(5) the quantum of deduction for the assessment year under consideration would be computed as if such eligible business where the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto the assessment year under consideration which in the context of the assessee would mean that profits earned from generation and sale of electricity from all the Units would have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s truck hire charges, the assessing officer held provisions of section 194C were applicable in respect of such payments. Accordingly, he added back Rs.41,84,442/- and Rs.58,83,843/- to the assessee's total income for assessment years 2006-07 and 2007-08, respectively. 5.2 In appeal the Ld.CIT(A) following the decision of the Tribunal in assessee s own case for A.Y. 2005-06 deleted the disallowance by observing as under : 24. I agree with the contention of the appellant. The Honourable ITAT, A Bench, Pune, vide their order in ITA No. 145/PN/2008 in the appellant's own case for assessment year 2005-06 had held as under: 8. ........ we are of the view that purchase of milk was predominant factor in the transaction and not the hiring of truck to transport the same to the assessee. Since the predominant factor in the contract was sale of milk, the contract cannot be turned as for carrying out any work to invoke the provisions of Sec. 194C of the Act. The Ld CIT, in our view was not justified in treating the hiring of truck to supply the milk in isolation as work contract to attract the provisions of Sec. 194C of the Act without appreciating that predominant fact behind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant. A similar issue had come up in appeal before me in the case of M/s Preetam Enterprises wherein the Honourable IT AT, Pune Bench 'A', Pune in ITA No. 544, 545 and 613/PN/2009 dated 29/04/2011 in its case for assessment years 2004-05, 2005-06 and 2006-07, had allowed the claim of deduction under section 80IA(4)(iv)(a). The relevant portion of the ITAT's order is reproduced below : 2.1 We also find that in the case of Velayudhaswamy Spinning Mills (P) Ltd., Vs ACIT (2010) 231 CTR (Mad) 368 Hon ble Madras High Court has held that losses and depreciation of the years earlier to the initial assessment year which have already been absorbed against the profits of other business cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction under section 80-IA. Following this judgment of Hon'ble Madras High Court, this issue is decided in favour of the assessee. The assessee is entitled to claim for deduction u /s 80IA(iv)(a) of the Act. 29. Thus, in view of the identical facts and circumstances, decision of the Honourable ITAT reproduced above is applicable to the instant case also. The disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (A.Y. 2008-09) and J.A. Solutions for purchase of Graphic Design and ERP business Solution (A.Yrs.2008-09 and 2009-10 respectively). (ii) TDS was deducted on payment made to Yantra Automation Pvt. Ltd. (iii) The fact that VAT was levied, as reflected in the sale bills, clearly indicate that purchase of graphic design and ERP package did not involve any contractual obligation. (iv) Other purchases debited to computer development charges included purchase of software, antivirus software, internet modem. Since these were outright purchases from the dealers, provisions of section 194J are not applicable as no professional fees are paid. COMPUTER MAINTENANCE CHARGES : (i) These expenses were incurred towards purchase of consumable items such as computer consumables, replacement of batteries, cables, refilling, repairs replacement of parts, tonner refilling etc. (ii) The tax invoices included VAT charges levied by the seller which goes to indicate that appellant had not obtained any technical consultancy service. (iii) Tax was deducted at source in respect of payments made to Chitale Digitals (A.Y. 2008-09) and Printex Sales and Services . 12.3 So far as the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has also provided copies of bills in respect of the payments which have been made. It is seen from the bills that the appellant has deducted TDS on payments made to Chitale Digitals aggregating to RS.2,50,000/- as well as payments made to Printex Sales for Rs.33,672/-. Therefore, disallowances of these amounts were incorrect. In respect the payment of balance amount of Rs.5,62,031/- incurred on computer development charges, the appellant has shown that it has deducted TDS on bill for services of Yantra Automation Pvt. Ltd. for Rs.3,75,339/-. The appellant has also shown that an amount of Rs.52,000/- was paid to JA solutions for purchase of a Graphic Design. This was an outright purchase on which VAT was also paid by the appellant. Hence, TDS was not required to be made on this amount. The balance amounts have been paid to various people like Printcom Services etc. and the reason for incurring these expenses has not been made explicit in the appellate stages. The bills have also not been produced for verification so as to enable one to find out the nature of expenses incurred. Hence, the disallowance made is sustained to the extent of Rs.1,34,692/-. 12.5 Similarly, the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eling charges. This is a case where wheeling charges are paid for the use of a facility provided by machinery and other equipment whereby the customers avail the benefit of usage of such equipments and the same cannot mean technical services provided to a customer for a fee. Therefore, because the usage of transmission lines for transmitting power has not resulted into any technical services being rendered to the appellant, the provisions of section 194J will not be applicable. Similarly, the provisions of section 194C will also not be applicable in the instant case because section 194C contemplates a liability to deduct tax at source in respect of work carried out in pursuance of a contract between the contractor and a specified person. Any service contract which does not involve carrying out of any work would be outside the purview of section 194C. The payment of transmission and wheeling charges does not involve carrying out of any work and hence would be outside the purview of section 194C. 36. Deduction on account of transmission loss to the extent of 5% is also not the result of any contract or any technical services rendered by the MSEB. In fact, this is a charge on reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the findings given by the Ld.CIT(A) that provisions of section 194J will not be applicable to the assessee company since usage of transmission lines for transmitting power has not resulted into any technical services being rendered to the assessee. Similarly, we also agree with the findings given by the Ld.CIT(A) that the provisions of section 194C will also be not applicable in the instant case since the payment on transmission and wheeling charges does not involve carrying out of any work and hence would be outside the purview of section 194C. In view of the above the order of the CIT(A) in deleting the addition made by the Assessing Officer on account of wheeling charges paid to MSEB and computer expenses u/s.40(a)(ia) for non deduction of tax at source is upheld and the ground raised by the Revenue is dismissed. 14. Ground of appeal No.6 in ITA No.24/PN/2013 is identical to ground of appeal No.6 in ITA No.23/PN/2013. We have already decided the issue and the ground raised by the Revenue has been dismissed. Following the same ratio, the above ground raised by the Revenue is dismissed. 15. In the result, all the 4 appeals filed by the Revenue are dismissed. P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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