TMI Blog2010 (12) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at source being deducted - The Court in its earlier decision what was held is that the Assessing Officer has to be approached under sec.195(2), to decide the correct amount of deduction where tax is deductible and not to invoke sec.195(2) indiscriminately without bothering and looking into whether the payments contained element of income or not. - ITA Nos. 697 and 757/Mds/2009, ITA Nos. 976 and 1017/Mds/2009, - - - Dated:- 22-12-2010 - O.K. Narayanan, Hari Om Maratha, JJ. R. Vijayaraghavan for the Appellant Tapas Kumar Dutta for the Respondent ORDER O.K. Narayanan:- 1. These are two sets of cross appeals filed by the assessee and the Revenue for the two assessment years 2000-01 and 2005-06. The assessment for the assessment year 2000-01 was completed u/s.143(3) read with sec.147 and for the assessment year 2005-06 it was completed u/s.143(3) of the I.T. Act, 1961. These cross appeals are directed against the orders of the Commissioner of Income-tax (Appeals)- III at Chennai dated 24.2.2009 and 25.2.2009. 2. The assessee-company is engaged in the business of manufacturing two wheelers. In the course of assessment proceedings certain disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from the business profits. This issue is also decided against the assessee-company. 3.(iii) The appeal filed by the assessee for the assessment year 2000-01 is liable to be dismissed. 4. Next we will consider the cross appeal filed by the Revenue for the assessment year 2000-01 in I.T.A.No.976/Mds/2009:- 4.(i) The first ground raised by the Revenue is that the Commissioner of Income-tax (Appeals) has erred in treating the replacement cost of dies and moulds as revenue expenditure against the finding of the Assessing Officer that the replacement expenses were in the nature of capital expenditure. 4.(ii) This issue was considered by Chennai Tribunal in assessee's own case for the assessment year 2003-04 through their order dated 22.5.2008. The Tribunal held that dies and moulds cannot be classified as plant and machinery because they themselves cannot be employed independently in a manufacturing process. Such dies and moulds are normally attached to machineries to suit the individual requirement of a particular product. Relying on the judgment of the Hon'ble Karnataka High Court in the case of Mysore Spun Concrete Pipe Pvt. Ltd. (194 ITR 159), the Tribunal hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is relating to civil structures, it does not cease to be an effluent treatment system. It is in this perspective that the Tribunal has already held the view that the assessee is entitled for 100% depreciation as in effect what has been erected by the assessee-company is an effluent treatment plant in the nature of reverse osmosis plant. Accordingly, we confirm the order of the Commissioner of Income-tax (Appeals) on this point. This ground also fails. 4.(v) The appeal filed by the Revenue for the assessment year 2000-01 is liable to be dismissed. 5. Next we will consider the appeal filed by the assessee-company for the assessment year 2005-06 in I.T.A.No.757/Mds/2009:- 5.(i) The first issue raised by the assessee-company is that the Commissioner of Income-tax (Appeals) has erred in confirming the order of the assessing authority in disallowing the ASEAN project expenses incurred in the previous year relevant to the impugned assessment year. 5.(ii) The assessee-company had incurred certain expenditure for assisting and providing services to PT TVS Motor Company, Indonesia . The said Indonesian company is a subsidiary of the assessee. The said subsidiary is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sian project was completed. The assessee did not claim the amount as expenditure at the point of incidence. The allocation finally took place in the previous year 2006-07 relevant to the assessment year 2007-08, when the assessee-company recovered the mark up amount of Rs. 39,70,06,142/- as against the incurred expenditure of Rs. 36,87,79,276/-. The real character of the amount spent by the assessee-company in its Indonesian project was determined by the assessee-company at that point of time. This is proved by the fact that the assessee has treated the recovered amount of Rs. 39,70,06,142/- from the Indonesian company as its income and offered for taxation for the assessment year 2007-08. When the assessee has offered the recovered amount as its income, it is quite rightful in its part to claim the earlier expenditure as deductions in computing the income arising out the amount recovered from Indonesian subsidiary. The assessee thought it fit to claim such expenditure assessment year-wise rather than claiming full deduction in the assessment year 2007-08 when the entire recovered amount was offered as income The amount claimed by the assessee by way of expenditure for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of actual payment and receipt. The next alternative is that the assessee could set off the total expenditure of Rs. 36,87,79,276/- against the amount of Rs. 39,70,06,142/- recovered from the Indonesian company and offer the balance amount as income for the assessment year 2007-08. Both methods are acceptable in law. 5.(xii) The assessee has chosen the first alternative. This method may be more prudent because ultimately the assessee has treated the entire transaction in the nature of a business transaction of its own by offering the gross recovery as its income so that the corresponding expenditure are claimed as deductions in the year in which they were actually incurred. 5.(xiii) In view of the facts and circumstances as stated above, we hold that the assessee is entitled in law to claim the expenditure of Rs. 5,00,31,849/- as deduction in computing the taxable income of the impugned assessment year 2005-06. The balance instalments of Rs. 16,14,13,328/- and Rs. 15,73,34,099/- have to be allowed as deductions in the assessment years 2006-07 and 2007-08 respectively. 5.(xiv) This issue is decided in favour of the assessee and the assessing authority is dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Nos.792 and 893/Mds/2007. 7.(iii) Similarly, the other three issues of work-in-progress, entry tax and 100% depreciation also have been considered by the I.T.A.T., Chennai Benches in the above order and held in favour of the assessee after upholding the order of the Commissioner of Income-tax (Appeals) on these issues. 7.(iv) Therefore, in short, we uphold the order of the Commissioner of Income-tax (Appeals) in respect of the above four items and reject the grounds raised by the Revenue. 8. The next issue raised by the Revenue is that the Commissioner of Income-tax (Appeals) has erred in deleting the addition made by the Assessing Officer towards difference between sales tax deferral loan amount and the settlement made against the loan on NPV basis:- 8.(i) It is the case of the Revenue that the Commissioner of Income-tax (Appeals) ought to have seen that the assessee neither paid sales tax collection to the Government nor returned the amount to the customers whereby the sales tax collection formed part of trading receipts of the assessee-company. 8.(ii) This issue has been considered by the I.T.A.T., Mumbai Bench 'E' (Special Bench) in the case of Sulzer Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Accelerated Freez and Drying Co. Ltd. (31 SOT 442) where it has been held that the loan availed in capital account cannot be treated as income in the hands of the assessee on its remission. The Bench had held that there is no evidence to show that in similar cases there has been any remission or cessation of liability by the State Bank of India . The Special Bench therefore, held that one of the requirements spelt out in sec.41(1)(a) has not been fulfilled in the facts of that case. 8.(vi) In view of the above Special Bench decision, the claim of the Revenue is not sustainable under sec.41(1) of the Act. 8.(vii) The Special Bench has also approved the decision of the I.T.A.T., Cochin Bench in the case of Accelerated Freez and Drying Co. Ltd. (31 SOT 442) dealing with sec.28(iv). In the said case, the Cochin Tribunal held as under:- "It is a trite law that the nomenclature given by an assessee to a particular account in its books of account is not the sole test to decide the real character of that account. Therefore, the fact that the assessee had credited the loan waiver amount in its general reserve account would not influence the process of determining the exact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on deduction of tax at source. Those payments related to export agency commission and consultancy payment. 9.(v) In Circular No.786 dated 7.2.2000, the Central Board of Direct Taxes has deliberated on the issue of deduction of tax in respect of export commission payable to non-resident agent for services rendered abroad. After examining the scheme of sec.195, the Board has clarified that no tax is deductible under sec.195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes an allowable expenditure. 9.(vi) In respect of other items made by the assessee as consultancy fee etc., the payments were made to residents of Singapore and U.K. India is having DTAA with both of the countries. As per the terms of DTAAs the payments made would be treated as fees for technical know-how available to the resident in India. The Commissioner of Income-tax (Appeals) has clearly explained in his order that such services have not been rendered by the non-resident to the assessee in India. Therefore, those payments do not pertake the character of fees for technical services. 9.(vii) When such pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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