TMI Blog2011 (1) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 - SHRI A. D. JAIN, JM SHRI K. D. RANJAN, AM Assessee by : Shri S. D. Kapila, Adv.; S/Shri R.R. Maurya, Adv.; Kartik Bansal, CA; Ms. Charu Kapoor; Department by : Shri Amrendra Kumar, Sr. D. R.; ORDER Per K.D. Ranjan, Accountant Member : These three appeals by the Revenue in the case of two different assessees for assessment year 2003-04 arise out of separate orders of the ld. Commissioner of Income-tax (Appeals)-VIII, New Delhi. 2. First we will take up the Revenue's appeals in ITA. Nos. 395 397 (Del) of 2007. Except difference in figures, the issue involved in these appeals is identical. The grounds of appeal are reproduced as under: "Whether on the facts and in the circumstances of the case the ld. CIT (Appeals) was justified in deleting disallowance of Rs. 19,17,202 being salary paid to non-resident staff outside India under section 40(a)(iii) without appreciating the fact that : (i) section 40(a)(iii) clearly spells out that any payment which is chargeable under the head 'Salaries', if payable outside India and if the tax has not been paid thereon, will not be eligible for getting deduction; (ii) in the instant case, the salaries hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Mother Dairy Fruits Veg. Pvt. Ltd. 4. On appeal the ld. CIT (Appeals) following his decision for assessment year 2002-03 held that similar disallowance made by the assessing officer was allowed by him vide order dated 6/12/2005. He, therefore, deleted the addition made by the assessing officer in the case of both the assessees. 5. Before us, the ld. Sr. DR submitted that ITAT in assessee's own case for assessment year 2002-03 in ITA. No. 884 (Del) of 2007 has held that the provisions of section 40(a)(i) and 40(a)(iii) are analogous in view of the ratio of the decision of ITAT Delhi Bench 'D' in the case of Van Oord ACZ India Pvt. Ltd. v. ACIT in ITA. NO. 2126 (Del) of 2007 dated 30th November, 2007 fully applies to the facts of the assessee's case. Therefore, the argument of the assessee that if the payment of salaries made outside India were not liable to taxation, the assessee was not liable to deduct tax at source and no disallowance could be made under section 40(a)(iii) of the Act, is liable to be rejected and the same was rejected as such. In CIT v. Vijay Singh Broking Corporation 261 ITR 113, Hon'ble Gujarat High Court on identical issue has held that as the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that Hon'ble Supreme Court in the case of CIT v. Eli Lilly Co. (P.) Ltd. 312 ITR 225 (SC) has laid down that the liability of payer to deduct at source under section 192 of the Act arises only if such payment is taxable under the head 'salaries'. He has further submitted that section 195 categorically excludes income chargeable under the head 'salaries' from its purview. On the other hand, deduction at source on income chargeable under the head 'salaries' is covered by provisions of section 192 which are quite different from section 195. The Tribunal while deciding the issue in assessment year 2002-03 had made no reference to these provisions. He further submits that provisions of section 40(a)(i) of the Act has to be read along with provisions of section 195(1) and section 9(1)(i). On the other hand, section 40(a)(iii) has to be read along with section 192 and section 9(1)(ii) and (iii) and Explanation thereto. He further submitted that the decision of ITAT in assessment year 2002-03 has given its decision without noticing the relevant provisions of section 9, which specifically exclude from its purview payment of salaries to non-resident employees, rendering services o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Under section 40(a)(iii) any payment which is chargeable under the head 'salaries', if it is payable outside India and if the tax has not been paid thereon nor deducted there-from, under Chapter XVII-B shall not be allowed as deduction in computing the profit and gains of business or profession. Therefore, for the applicability of provisions of section 40(a)(iii) of the Act the payment should be chargeable to tax under the head 'salaries". Admittedly, the payment of salaries has been made by the assessee for the services rendered outside India to non-residents. Section 192 of the Act provides that any person responsible for paying any income chargeable under the head 'salaries' shall at the time of payment deduct Income-tax on the amount payable at the average rate of Income-tax computed on the basis of the rates in force for financial year in which the payment is made. The provisions of clause (ii) of section 9(1) deals with the income under the head 'salaries' if it is earned in India. Its importance lies in its discarding the test of source in favour of earning test in the imposition of charge of income under the head 'salary'. The result of this provision is that the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of salary paid to non-residents for the services rendered abroad. Accordingly, in our considered opinion, the ld. CIT (A) is justified in deleting the addition. 10. In the result, the appeals filed by the Revenue for assessment year 2003-04 in both the cases stand dismissed. 11. Now coming to the Revenue's appeal in ITA. No. 1596 (Del) of 2009, the grounds of appeal are reproduced as under :- 1. The order of the ld. CIT (Appeals) is erroneous and contrary to facts and law; 2. On the facts and in the circumstances of the case, the ld. CIT (Appeals) has erred in deleting the addition of short term capital gain of Rs. 83,54,694 ignoring :- (a) that the finding of CIT (A) that short term capital gain can be set off against the short term capital loss is against the provisions of I.T. Act. As the capital gain is taxable by virtue of special provisions for computation of capital gains in case of depreciable assets under section 50, which is a deeming provision; (b) that loss on transfer of capital asset is not a capital loss under section 47(iv) as it is not considered under the definition of 'transfer'. " 12. In this case the facts of the case stated in brief are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the above, the assessee was in the process of setting up a plant in Bangalore. The plant had not been capitalized and was shown as 'Capital works in progress. The total value of assets shown as 'work in progress' on the date of transfer was Rs. 37,93,64,000. The assets mentioned in Para 2.5 as per BTA were transferred to MDFPL for a total consideration of Rs. 72,73,23,805 and assets representing 'capital work in progress' were transferred at Rs. 38,77,18,694. The assessee thus incurred capital loss of Rs. 5,59,55,303 [783,279,108 -727,323,805] on transfer of various assets. Simultaneously, capital gain of Rs. 83,54,694 [387,718,694 - 379,364,000] on transfer of 'capital work in progress' was made. Since as MDFPL being a 100 per cent subsidiary, neither capital gain was declared chargeable to tax nor capital loss was allowable and accordingly, in the return of income under section 139(1), net capital loss of Rs. 4,76,00,609 was not claimed. 14. The ld. CIT (Appeals) after examining the facts of the case deleted the addition by observing as under :- "4.3.1. I have perused the assessment order and the submissions made by the appellant. The issue under consideration is about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All the assets connected with business were transferred under an agreement dated 6th June, 2002 effective from 1st July, 2002. The value of land building, plant machinery etc. as on 30th June, 2002 was at Rs. 78,32,79,108 which was transferred for a consideration of Rs. 72,73,23,805. This resulted in capital loss of Rs. 5,59,55,303. In addition to above the assessee was in the process of setting up of a plant in Bangalore. The total value of the plant as on 30th June, 2002 was Rs. 37,93,64,000 which was transferred at Rs. 38,77,18,694 resulting into profit of Rs. 83,54,694. The assessee admitted loss of Rs. 4,76,00,609. The assessee neither declared the capital gains in respect of work in progress chargeable to tax nor the benefit of capital loss was allowable. Accordingly, in the return of income net capital loss of Rs. 4,76,00,609 was not claimed. The assessing officer, however, assessed the capital gains of Rs. 83,54,694 chargeable to tax under capital gains ignoring the loss suffered by the assessee on transfer of business assets. Under section 47(iv) any transfer of a capital asset by a company to a 100% Indian subsidiary company shall not be treated as transfer. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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