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2016 (7) TMI 164 - ITAT MUMBAI

2016 (7) TMI 164 - ITAT MUMBAI - TMI - Disallowance of claim for deduction of development expenditure u/s. 37(1) or in the alternative, u/s. 35(1) of the Act, allowing depreciation thereon instead - Held that:- The expenditure was toward setting up a new, dedicated unit to roll out new types of vehicles, which commenced commercial production in May, 2010. The expenditure was accordingly capital expenditure, entitled to depreciation u/s.32(1)(i) of the Act. The company was here-in-before manufact .....

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nce with the first accounting and legal principles. We, accordingly, endorse same. - Decided in favour of revenue - Disallowance u/s. 40(a)(ia) - non-deduction of tax at sourceon ‘service coupon commission’ - Held that:- we only consider it fit and proper that the matter is restored back to the file of the AO for allowing an opportunity to the assessee to satisfy him of being not in default under the amended section 201. That is, in respect of the tax deductible on the payment against servic .....

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rdingly. - I.T.A. Nos. 3324 & 4645/Mum/2013 - Dated:- 13-5-2016 - SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARORA, AM For The Appellant by : Shri H. P. Mahajani For The Respondent : Shri N. P. Singh ORDER Per Sanjay Arora, A. M.: These are a set of two Appeals by the Assessee agitating its assessments, i.e., as modified by the first appellate authority, for two consecutive years being assessment under the Income Tax Act, 1961 ( the Act hereinafter) for the assessment years (A.Ys.) 2007-08 and 2008 .....

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ion of medium and heavy commercial vehicles (MCVs and HCVs), i.e., in gross tonnage categories of 9 MT to 49 MT. The expenditure, capitalized in books, was however claimed as deductible u/s. 37(1) as the company was already in the business of manufacture and sale of vehicles. That is, the entire activity of development of new types of vehicles constituted an integral part of its existing business and existing line of business. In the Revenue s view, however, the expenditure was toward setting up .....

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utset, the ld. AR would concede that the issue stands squarely covered against the assessee by the order by the Tribunal in the case of its associate concern, i.e., Mahindra and Mahindra Ltd. for A.Y. 2006-07, adducing a copy thereof (in ITA No. 8597/Mum/2010 dated 06.6.2012). 3. We have heard the parties, and perused the material on record. In our view, the Revenue s stand, upheld by the tribunal in the cited decision, is in consonance with the first accounting and legal principles. We, accordi .....

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or its intended use. 21. The cost of a self-constructed fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset. Further, as depreciation is being already allowed on the said development expenditure from year to year, no separate direction to the Assessing Officer (A.O.) is called for. We decide accordingly, and the Revenue succeeds. The foregoing shall al .....

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n allowed by the assessee, a manufacturer and seller of commercial vehicles, to its authorized dealers. While the Revenue has made the disallowance - the non-deduction of tax at source being admitted, on the basis of application of section 194C of the Act to the impugned payments/credits, the assessee relies on the order by the Tribunal in Hero Motocorp Ltd. vs. Addl. CIT (in ITA No. 1980/Del/2012 dated 11.12.2013/copy on record). 5. Before us, the ld. Authorized Representative (AR), the assesse .....

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the vehicle manufacturercompany) to the customer s vehicles, paid for by them by service coupons, which stand paid for by the company (at fixed, predefined rates for different vehicles) on their presentation thereto by the dealers, is neither availed by the assessee nor can be regarded as payment for services to itself. The ld. Departmental Representative (DR) would, on the other hand, place reliance on the orders by the Revenue authorities, further submitting that the tribunal s order (supra) .....

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ue any independent findings. We may firstly begin by reproducing the relevant paras of the impugned order, delineating the respective cases of both the sides, as under: 4.3 As regards service coupon commission disallowed by the AO u/s 40(a)(ia) r.w.s. 194C, the facts as stated by the appellant are as under :- (i) Service coupon amount is fixed class of vehicle-wise. During 2006-07, only LCVs were sold for which the amount of service coupon per vehicle was ₹ 2500, as already stated in our e .....

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ssed in the SAP system is given below. (v) Since full amount of credit is already taken to the P&L Account at the time of booking the sale, a provision is made for the unexpired service coupons at the end of the year. (vi) In respect of free services the dealer is obliged to render only free service to the customer. In the case of service coupons the customer redeems the service coupon with the dealer on servicing the vehicle. Replacement of parts does not form part of free service. The serv .....

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al which is subsequently settled by the company's customer care department. Warranty claims when settled are debited to Warranty Provision account and credited to Dealer's account. (viii) Where the vehicle is not in warranty, such costs are recovered from the customer. (ix) Thus the fact remains that the entire amount of recovery for service coupon is offered for tax at the time of booking the sale. A provision is made for unexpired service coupons at the end of the year. Value of such s .....

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79,943.13 Sales - Vehicle 445,022.00 Sales - Vehicle Service 2500.00 Sales - Vehicle - Ware 10,750.00 Excise/Cess Transfer 55,566.00 Educ. Excise/Nccd 1667.00 Vat Payable - Maharashtra 64,438.13 Service Coupon - Domes 2500.00 Coupon - Domestic 2500.00 Prov Warranty - Domestic 4500.00 Warranty claims 4500.00 4.4 The facts of the case have been considered: • A perusal of the aforesaid facts clearly shows that amount given by the manufacturer to the dealer in respect of free service coupon is .....

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per HCV vehicle (Rs. 6000 from June 2012 onwards), is for carrying out the work by way of contract between the assessee company and the dealer. Hence, a payment for works contract. • The appellant's argument that the said amount represents part of the price at which it sells its vehicles to the dealers is not maintainable under the facts and circumstances of the case. 4.6 Since the payment of ₹ 213,46,000/- is in the nature of payment to contractor for work assigned by the assesse .....

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certained price, the cost of free service obligation on the part of the assessee is embedded in the concluded sale contract and sale price of the vehicle. The dealer, in turn, makes onward sales to the customers at a price which includes free service obligations. The contract between dealer and customer is independent and separate contract. The customer in terms of the sale contract with the dealer approaches the dealer for these free services. It is the customer who avails the service for the c .....

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ion included in the sale price. It is in term of a independent contract of sale which stipulates that the assessee should reimburse the cost incurred by the dealer if and when it performs free services to the ultimate customer. On this factual matrix, it would be wrong to hold that the dealer has rendered technical services as contemplated u/s. 194J to the assessee for which the assessee paid a particular amount to the dealer and non-deduction of tax at source on such payments attracts disallowa .....

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for itself. As already stated, even if taken as a service availed by the assessee, sec. 194J is not attracted as this is not a technical service. In para 29.43, the tribunal considers the Revenue s reliance on Circular 8 of 2009 dated 24.11.2009, concerning tax deductible at source u/s. 194-J, wherein it stood clarified by the Board that the payments made by TPA on behalf of Insurance Company to hospitals are liable for tax deduction at source, before concluding at para 29.45 of its order, whic .....

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vice recipient, in-as-much as it found that the payment was in fact made by the customer, i.e., the person availing the service, as a relevant consideration toward application of s. 194J. 6.2 Section 194C, which stands invoked and applied in the instant case, is reproduced as under (in its relevant part): Payments to contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including suppl .....

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n (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation.-For the purposes of this section,- (i) "specified person" shall mean,- (a) the Central Government or any State Government; or (d) any company; or (ii) …&helli .....

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lude manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. As apparent, its scope is materially different (from s. 194J), and envisages: a) a contract between a resident (contractor) and a specified person in pursuance to which some work is carried out; and b) credit or payment to the contractor by any person responsible for such work. 6.3 In the present case, we are completely unable .....

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out, even as held by the ld. CIT(A), is work within the scope of the term as defined u/s. 194C. The authorized dealers through whom the vehicle is sold, are not paid for the services (value of which is embedded in the sale price of the vehicle sold to the customer) at the time of it s sale. The reason is simple. It is not certain as to which dealer and, rather, from which place - the dealers being spread across the country, the customer may avail all or any of the stipulated services, usually t .....

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ontract (arrangement) with it s dealers. Under this manufacturedealer contract, which in fact forms part of the specimen dealer agreement (PB pgs. 16-35), the dealer is obliged to provide services (in the nature of repair and maintenance services) to the vehicle (from whom-so-ever dealer purchased) that satisfies the conditions of warranty (qua services), against service coupons. The customer thereby only redeems his coupons. Payment/credit is allowed by the vehicle manufacturer on presentation .....

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acturer (assessee-company), who has already received the consideration in its respect from the customer as a part of its (vehicle s) sale price. That is, the assessee-company is the person responsible for making the payment to the dealer (contractor) under the circumstances. That it is also the specified person u/s.194C(1) is another matter. How, we wonder, are the ingredients of the section not satisfied? It is not necessary that the payer or the specified person should also be the recipient of .....

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oduct warranty; the obligation for undertaking repairs being independent of the sale of vehicle, though incurred at the time of or as a part of the contract of sale, and is accordingly to be honored, is of little moment. As afore-stated, the vehicle manufacturer, as the assessee-company, is the beneficiary of the value of these services in-as-much as the consideration for the same is already received by it in advance, making it is a part of the sale arrangement (of the vehicle). We, accordingly, .....

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h reference stands made to Explanation 2 to section 9(1)(vii). Each of the decisions relied upon by the tribunal in Hero Motocorp Ltd. (supra) are also in the context of section 194J, and not applicable in the instant case. True, the observation in Hero Motocorp Ltd. (supra) with regard to the service recipient (customer) being not the payer for those services, could be said to hold even for the contractual arrangement, but, as stated, each of the observations by the tribunal has to be considere .....

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vehicle, wherein the cost of the services is embedded. The payer, however, is the vehicle manufacturer (assessee-company), which is the person responsible for making the payments to the dealers, and on whom the law casts an obligation to deduct tax at source u/s. 194C(1), as well as is the person contractually bound to pay the dealer undertaking the services, i.e., for carrying out the work in pursuance of contract therewith (Dealer Agreement). Reference in this context may also be made to answ .....

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the relevant sum on the date of furnishing the return of income by the resident payee (dealer). That is, provides an exception to the operation of section 40(a)(ia). Section 201 also stands amended by way of first proviso thereto (by Finance Act, 2012 w.e.f. 1.07.2012) to the effect that any person failing to deduct in whole or in part the tax in accordance with the provisions of the relevant Chapter on the sum paid to a resident or credited to his account shall not be deemed as an assessee in .....

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Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT [2007] 293 ITR 226 (SC), wherein it stands clarified that tax deduction at source, being a mode of payment of tax, where the same stands deposited with the Exchequer by the payee, the same discharges the payer from the obligation to deduct the same. The said amendment has been held by the Hon ble Delhi High Court in the case of CIT vs. Ansal Landmark Township Pvt. Ltd. (vide its decision in ITA No.160 and 161 of 2015 dated 26/08/2015) as retrospec .....

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