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2016 (1) TMI 74 - ITAT CHENNAI

2016 (1) TMI 74 - ITAT CHENNAI - TMI - Reopening of assessment u/s 147 - assessee has not filed any details with regard to payment made to non-resident and the details of tax deducted at source - Held that:- Even after a specific questionnaire was issued to the assessee by the Assessing Officer during the course of regular assessment proceedings, the assessee could not furnish the name of the recipient, nature of payment and the details of tax deducted at source. Therefore, as rightly found by t .....

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that there was a change of opinion as found by the CIT(A). - Decided against assessee

Disallowance of marketing commission fees paid to overseas parties - Held that:- The claim of the assessee is that the assessee has taken container on lease and used the same for his leasing business. The copies of the agreement entered into between the assessee and M/s ABC Containers Pvt. Ltd. Colombo, for taking containers on lease or the services to be provided by M/s ABC Containers Pvt. Ltd. Col .....

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opinion that giving one more opportunity to the assessee to produce necessary material before the Assessing Officer may not prejudice the interest of Revenue in any way. The orders of the lower authorities are set aside and the issue of disallowance is remitted back to the file of the Assessing Officer. - Decided in favour of assessee by way of remand.

TDS u/s 195 - non deduction of TDS on leasing charges paid to the non-resident company - Held that:- Sub clause (4) of Article 9 clea .....

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Article 9 of the DTAA. It is well settled principles of law that DTAA will prevail over the domestic law namely, Indian Income-tax Act. It is open to the parties to take advantage of the beneficial provisions under the Income-tax Act, 1961, in view of sec. 90(2) of the Act. In view of the DTAA, lease rental received by M/s Crono Containers Ltd, from the assessee is not taxable in India, therefore, there is no liability for the assessee to deduct tax u/s 195 of the Act - Decided in favour of asse .....

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and keep the same to be fit for use. It is also not in dispute that the container taken on lease was in turn used by the assessee in its leasing business. Therefore, as rightly found by the CIT(A), the expenditure incurred by the assessee in the nature of customer domestication, transportation cost, lease rental, survey etc. are regular and recurring expenditure therefore, it is in the revenue field.- Decided in favour of assessee.

Disallowance u/s 14A - CIT(A) restricted the disallow .....

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lowance - Held that:- As rightly contended by the ld. Counsel, the keyman insurance policy is only to protect the company from adverse financial effects in case of unexpected death of Managing Director. But when the assesseecompany knows very well that no claim could be made on the death of the Managing Director, Shri Bijoy Poulose since he was holding more than 51% of the shares in the company, it is not known how the payment of ₹ 10 lakhs towards premium is going to protect the assessee- .....

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nder those circumstances, such a claim cannot be allowed while computing the total income. The CIT(A) has proceeded on a footing that the insurance company accepted the proposal of the assessee-company and issued the policy. However, he failed to consider that the policy was issued under certain restriction one of which is that the insured person should not hold more than 51% shares of the company. Since this restriction clause was not taken into consideration by the CIT(A), this Tribunal is una .....

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CIAL MEMBER Both assessee and Revenue filed appeals for the assessment years 2002-03 and 2003-04. The Department also filed appeals for assessment years 2006-07 and 2008-09. Since common issue arises for consideration in all the appeals, we heard them together and disposing of the same by this common order. 2. Let us first take assessment year 2002-03. In Revenue s appeal I.T.A.No.557/Mds/2011, the Revenue is challenging the order of the CIT(A) wherein the reopening of assessment u/s 147 of the .....

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.2009. Referring to the reasons recorded by the Assessing Officer for reopening the assessment which was extracted in the assessment order at pages 1&2, the ld. DR submitted that the assessee has paid ₹ 1.54 crores towards lease expenses to M/s Crono Containers Ltd, United Kingdom, without deduction of tax. The Assessing Officer also found that the assessee has not disclosed the above payment in the return of income. Even the name of the recipient was not disclosed to the Department at .....

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xtent of ₹ 0.70 crores was found to be not eligible since the assessee was not owner of the container. During the course of original assessment, the assessee did not disclose the nature of these expenses. Since the Assessing Officer has not formed any opinion and the details were also not furnished by the assessee during the course of original assessment, according to the ld. DR, there is no change of opinion as found by the CIT(A). Therefore, the judgment of the Apex Court in CIT vs Kelvi .....

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fficer has also called for details with regard to repositioning cost and domestication expenses. The assessee filed the details as called for by the Assessing Officer, therefore, it is not a case of negligence on the part of the assessee for not furnishing any relevant material. Referring to proviso to sec.147 of the Act, the ld. Counsel submitted that the Assessing Officer completed the assessment u/s 143(3)of the Act on the basis of the return filed by the assessee, therefore, after completion .....

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he assessee filed the complete details before the Assessing Officer and the Assessing Officer has not considered the same at the time of passing an order u/s 143(3), the assessee cannot be fastened with any liability. In this case also, according to the ld. Counsel, the assessee has furnished all details, therefore, reopening of assessment after expiry of four years is not justified. On a query from the Bench when the Assessing Officer specifically claims that the assessee has not furnished the .....

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Officer. The ld. Counsel has also clarified that if necessary, the assessee is ready to produce the books of account before this Tribunal also. The ld. Counsel further submitted that if the assessee has not furnished the name of the recipient, how the Assessing Officer was able to refer the name of the recipient while recording reasons for reopening the assessment. The very fact that the Assessing Officer mentioned the name of the recipient while recording reasons for reopening the assessment s .....

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, the Assessing Officer reopened the assessment after expiry of four years. Proviso to sec.147 of the Act clearly says that whenever the assessment was completed u/s 143(3) the same cannot be reopened after expiry of four years provided there was a negligence on the part of the assessment for furnished the particulars required for completing the assessment. In the case before us, while recording reasons for reopening the assessment, the Assessing Officer categorically mentioned that the assessee .....

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penses. Question No.8 and 10 in the questionnaire issued to the assessee by the Assessing Officer read as follows: 8. A brief note on lease rentals and pick up credit (Schedule 11) 10. (a)Repositioning cost of ₹ 3,32,275/- and (b) Domestication expenses of ₹ 70,21,921/- Why do they figure as a new item of expenditure during this year. Please give a brief note on the above. For the above questionnaire, the assessee has answered as follows, a copy of which is available at page 6 of the .....

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gence on the part of the assessee in furnishing fully and truly all the material facts relevant for completing the assessment. 7. Let us now see whether there is a change of opinion as found by the CIT(A). We have carefully gone through the assessment order dated 29.3.2005. There is no discussion about the expenditure incurred by the assessee with regard to payment of lease rentals to non-resident and the claim of depreciation. Therefore, it is obvious that the Assessing Officer has not formed a .....

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t remains that the Assessing Officer has not taken any view in the original assessment, therefore, there is no question of any change of opinion. This Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment after expiry of four years since there was a failure on the part of the assessee in disclosing fully and truly all the material facts relevant for completing the assessment. Therefore, the CIT(A) is not correct in holding that reopening of assessme .....

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T(A) shall consider the issue raised by the assessee on merit and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. 9. In the result, appeal of the Revenue I.T.A.No.557/Mds/2011 is allowed and the appeal of the assessee I.T.A.No.441/Mds/2011 is allowed for statistical purposes. 10. Now coming to assessment year 2003-04, in I.T.A.No. 442/Mds/2011, the assessee has raised a ground challenging the reopening of assessment u/s 147 of the Act. How .....

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Sridhar, ld. Counsel submitted that the commission was paid to M/s ABC Containers Pvt. Ltd., Colombo. According to the ld. Counsel, the foreign company has not rendered any service in India. Therefore, the payment made to M/s ABC Containers Pvt. Ltd. Colombo, is not taxable in India, hence, the assessee is not liable to deduct tax in India. The ld. Counsel submitted that the assessee is engaged in leasing of containers. The ld. Counsel clarified that the assessee is not hiring any ship for tran .....

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the contrary, Shri P. Radhakrishnan, ld. DR submitted that the containers taken on lease by the assessee might have reached Indian territory at one point of time, therefore, it cannot be said that the foreign company has not rendered any service in India. Moreover, no material was produced before the Assessing Officer and the CIT(A), therefore, the CIT(A) found that the payment of ₹ 3,78,342/- made to M/s ABC Containers Pvt. Ltd. Colombo, has to be treated as deemed income accrued in India .....

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The copies of the agreement entered into between the assessee and M/s ABC Containers Pvt. Ltd. Colombo, for taking containers on lease or the services to be provided by M/s ABC Containers Pvt. Ltd. Colombo, are not furnished either before the lower authorities or before this Tribunal. The CIT(A) confirmed the addition made by the Assessing Officer on the ground that the assessee has not established that the commission paid to non-resident company was for soliciting business outside India. There .....

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ote the cause of justice. Accordingly, the orders of the lower authorities are set aside and the issue of disallowance of ₹ 3,78,342/- is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh in the light of material that may be filed by the assessee and thereafter decide the same in accordance with law after giving a reasonable opportunity to the assessee. 15. Now coming to the Departmental appeal I.T.A.No. 695/Mds/2011, Shri P. Radhak .....

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(i) of the Act. However, on appeal by the assessee, the CIT(A) found that since the non-resident company has not rendered any service in India therefore, there is no need for deduction of tax u/s 195 of the Act. The ld. DR pointed out that in the course of its business activity, the containers might have reached Indian territory at any point of time, therefore, it cannot be said that the foreign company has not rendered any services in India. 16. On the contrary, Shri S Sridhar, ld. Counsel subm .....

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acting State, therefore, the income of M/s Crono Containers Ltd is liable to be taxed only in United Kingdom. Hence, the assessee is not liable to deduct tax u/s 195 of the Act. Even otherwise, the ld. Counsel submitted that no services were rendered in India by the nonresident company, therefore, the income of the non-resident company is not taxable in India, hence, the assessee is not liable to deduct tax u/s 195 of the Act. The CIT(A) by placing reliance on the judgment of Apex Court in GE In .....

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ited Kingdom reads as follows: ARTICLE 9 - Shipping - 1. Income of an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 of this Article shall not apply to income from journeys between places which are situated in a Contracting State. 3. For the purposes of this Article, income from the operation of ships includes income derived from the rental on a bareboat basis of ships if such rental inc .....

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ly also to income derived from participation in a pool, a joint business or an international operating agency. 6. Gains derived by an enterprise of a contracting State from the alienation of ships or containers owned and operated by the enterprise shall be taxed only in that State if either the income from the operation of the alienated ships or containers was taxed only in that State, or the ships or containers are situated outside the other Contracting State at the time of the alienation. 18. .....

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ng State namely, UK, in view of Article 9 of the DTAA. It is well settled principles of law that DTAA will prevail over the domestic law namely, Indian Income-tax Act. It is open to the parties to take advantage of the beneficial provisions under the Income-tax Act, 1961, in view of sec. 90(2) of the Act. In view of the DTAA, lease rental received by M/s Crono Containers Ltd, from the assessee is not taxable in India, therefore, there is no liability for the assessee to deduct tax u/s 195 of the .....

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ntainers. Admittedly, the marine containers were taken on lease from M/s Crono Containers Ltd,UK, . According to the ld. DR, these expenses arise provided that the containers are not re-exported within the stipulated time. This expenditure, according to the ld. DR, is capital in nature. The containers will lose its commercial importance unless the assessee incurred expenditure on domestication. The domestication expenses enable the containers to be fit for re-exportation. According to the ld. DR .....

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,273/- even though the assessee claimed the domestication expenses of ₹ 1,22,37,909/-. The Assessing Officer excluded the amount covered by exemption certificate u/s 197(1) of the Act. According to the ld. Counsel it is not in dispute that the marine container does not belong to the assessee. The assessee incurred expenditure to maintain the container which was taken on lease from the non-resident company. According to the ld. Counsel, the domestication expenses includes customer domestica .....

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sidered the rival submissions on either side and also perused the material available on record. It is not in dispute that the marine container does not belong to the assessee. In fact, the container was taken on lease from M/s Crono Containers Ltd, UK. The nature of expenditure which was claimed as domestication expenses are customer domestication, transportation cost, lease rentals, survey, handling charges etc. When the assessee has taken the marine container on lease, the assessee is duty bou .....

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the CIT(A). Accordingly, the same is confirmed. 23. In the result, the assessee s appeal I.T.A.No.442/Mds/2011 is partly allowed for statistical purposes and Revenue s appeal I.T.A.No.695/Mds/2011 is dismissed. 24. Now coming to Revenue s appeal I.T.A.No.696/Mds/2011 for assessment year 2006-07, the first ground of appeal is with regard to disallowance made by the Assessing Officer u/s 14A of the Act. 25. We heard ld. DR and ld. Counsel for the assessee. The assessment year under consideration .....

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oss exempted income. It is not in dispute that Rule 8D is not applicable for the year under consideration, therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly restricted the disallowance to 2% of the exempted income. This Tribunal do not find any infirmity in the order of the CIT(A). Accordingly the same is confirmed. 26. The next ground of appeal is with regard to disallowance of key man insurance premium paid to the extent of ₹ 10 lakhs. 27. Shri P Radhakris .....

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an 70% of the shares. In this case, the Managing Director whose life was insured is holding 79.48% of the shares in the company. The Managing Director s wife Smt.Sujatha Paulose is holding shares of 19.50%. Since the shareholding pattern is more than 50%, the assessee is not qualified for keyman insurance as per the terms of the insurance company. 28. On the contrary, Shri S. Sridhar, ld. Counsel submitted that keyman insurance was taken on the life of the Managing Director whose service is sign .....

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tor and the assesseecompany has also paid the premium. On a query from the Bench whether the assessee-company could make any claim on the keyman insurance policy in view of the conditions imposed by the insurance company, the ld. Counsel clarified that that may not be relevant factor for allowing the claim of the assessee. Once the assessee paid the premium for keyman insurance policy, such expenditure has to be allowed as revenue expenditure. 29. We have considered the rival submissions on eith .....

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rance policy prohibit the assessee-company from making any claim on the death of the Managing Director. As rightly contended by the ld. Counsel, the keyman insurance policy is only to protect the company from adverse financial effects in case of unexpected death of Managing Director. But when the assesseecompany knows very well that no claim could be made on the death of the Managing Director, Shri Bijoy Poulose since he was holding more than 51% of the shares in the company, it is not known how .....

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laim any compensation on the death of the Managing Director, Shri Bijoy Poulose. Under those circumstances, such a claim cannot be allowed while computing the total income. The CIT(A) has proceeded on a footing that the insurance company accepted the proposal of the assessee-company and issued the policy. However, he failed to consider that the policy was issued under certain restriction one of which is that the insured person should not hold more than 51% shares of the company. Since this restr .....

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