TMI Blog2011 (7) TMI 1252X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. We are of the opinion that these aspects have not been verified by the A.O. or ld. CIT(Appeals). Hence, we set aside the orders of lower authorities in this regard and remit the issue back to the file of the A.O. for consideration afresh de novo in accordance with law - Matter Restored back. Disallowance u/s 40(a)(ia) - Sub-contract to Main Contract - Assessee deducted tax only at 1% on the payments explaining that it had given the catering contract only as a sub-contract of its main contract with ONGC - AO deducted TDS at 2% stating that catering charges directly spent by the assessee HELD THAT:- It is observed that, unless assessee was given contracts for exploration by ONGC or similar companies who had licence from the Government, it could not operate a rig on its own nor extract any oil from the wells drilled by it. Thus, the rigs employed by the assessee in offshore drilling were all based on its contract with ONGC and similar companies licenced by the Government to do so. Hence, it could not be considered that the assessee had entered into a catering contract as an independent contract having no relation whatsoever with main contract it had with oil compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(7) - AO noted that assessee had claimed short term capital loss arising out of sale of units of mutual funds which were held for a period of less than three months - Disallowance was made u/s 94(7) - HELD THAT:- It is for the assessee to show that the short term capital loss claimed by it were all on mutual investments, for which there was no record date. Assessee could not produce any details. In fact, nothing was brought on record to show how the computation made by the Assessing Officer was not acceptable. We are, therefore, of the opinion that the disallowance was rightly done - Decision Against Assessee. Claim made otherwise than by way of Revised Return - Assessee made a claim for amortization of preference share issue expenses when put on notice that the said amount could not be allowed as revenue expenditure. HELD THAT:- Assessee had never made a claim for amortization of preference share issue expenses in its return of income, but had chosen to make such a claim when put on notice that the said amount could not be allowed as revenue expenditure. In so far as contention of learned D.R. that assessee could not prefer such a claim, but through a revised return, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Department, whereas, other two appeals are filed by the assessee. Appeals filed by the Department are taken first for disposal. I.T.A. No. 1542/Mds/10 (assessment year 2005-06) Revenue has taken six grounds out of which, grounds No.1 and 6 are general needing no adjudication. Vide its ground No.2, grievance of the Revenue is that ld. CIT(Appeals) deleted depreciation allowance Rs. 4,67,74,780/- made by the A.O. 2. Short facts apropos are that assessee had claimed depreciation in respect of its windmills. Disallowance was made by the A.O. for a reason that windmills were purchased by the assessee after completion of a lease, on residual value and depreciation was denied in earlier assessment years 2003-04 and 2004-05. 3. In its appeal before ld. CIT(Appeals), assessee pointed out that this Tribunal in its order dated 26.3.2008 in I.T.A. No. 1964/Mds/2006 for assessment year 2003-04, had decided this issue in favour of assessee and held that assessee was eligible for claiming such depreciation. 4. Now before us, the only contention raised by the learned D.R. is that the above referred decision of the Tribunal in assessee s own case for assessment year 2003-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts and cash flow statement filed by the assessee did show that out Rs.18,99,26,740/- incurred as interest expenditure, a sum Rs.18,25,99,371/- was used for acquisition of rigs and windmills. In so far as balance amount Rs.73,27,369/- was concerned, ld. CIT(Appeals) was of the opinion that assessee s contention regarding use of such amount towards working capital requirements was not disproved by the A.O. Further, as per ld. CIT(Appeals), it could not always be considered that direct or indirect expenditure was incurred and disallowance under Section 14A was required to be made in every case. He, therefore, deleted the and made by the A.O. 10. Now before us, learned D.R. submitted that Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. DCIT (328 ITR 81) though had held that Rule 8D of Income-tax Rules, 1962 could not be applied retrospectively, there was a clear ruling that Section 14A of the Act had to be applied even in earlier years and A.O. was not precluded from making apportionment of expenditure between exempt and non-exempt income for disallowance, even without invoking Rule 8D or sub-section (2) and (3) of Section 14A of the Act. 11. Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing its equipment, persons and staff. Therefore, the pursuant contracts entered by it, for satisfying the requirement of the main contract, were all in the nature of sub-contracts and hence, as per the assessee, it had rightly deducted 1% TDS. However, the A.O. was of the opinion that assessee s explanation regarding subcontracts could be only accepted to the extent of the amount reimbursed by ONGC for catering services done to its employees. Therefore, as per the A.O., the balance amount which came to Rs.1,24,43,488/- represented catering charges directly spent by the assessee and TDS ought have been deducted at 2% on such amount and not 1%. He, therefore, made pro rata disallowance of ₹ 62,21,744/-, relying on Section 40(a)(ia) of the Act. 15. In its appeal before ld. CIT(Appeals), argument of the assessee was that it had provided catering facilities for pursuant to the main drilling contract with ONGC. As per the assessee, it was its responsibility to provide catering facilities for ensuring due performance of the main contract and the sub-contract entered into with the catering services company was only for this purpose. With regard to the observation of the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls drilled by it. Thus, the rigs employed by the assessee in offshore drilling were all based on its contract with ONGC and similar companies licenced by the Government to do so. Hence, it could not be considered that the assessee had entered into a catering contract as an independent contract having no relation whatsoever with main contract it had with oil companies. If we look at Section 195C(2) of the Act, it reads as under:- Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the subcontractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and machinery repairs/rentals, varying amounts to M/s International Tubular F2E and International Offshore Management both of which were non-resident entities. On such payments, assessee deducted tax at 4%. Assessee arrived at 4% by considering the services rendered by the non-resident entities to fall under Section 44BB of the Act. Therefore, as per the assessee, only 10% of their receipts could be deemed as income and 40% of such 10% worked out to 4%. However, the A.O. was of the opinion that assessee was required to deduct tax at 40% on the gross sum paid to such entities under Section 195 of the Act. Therefore, as per the A.O., assessee had failed to deduct tax as prescribed under the Act and made a disallowance Rs. 2,11,02,509/- under Section 40(a)(i) of the Act. 21. Before ld. CIT(Appeals), argument of the assessee was that it had correctly deducted the tax as prescribed under the Act. According to the assessee, the services rendered by the non-resident entities were in connection with prospecting and extracting or production of mineral oils in India. Hence, under sub-section (2) of Section 44BB, profit of such entities could be considered at 10% of their receipts. Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce made by the A.O. 22. Now before us, learned D.R. submitted that assessee could not by itself decide whether Section 44AB was to be applied to the concerned non-residents. According to learned D.R., when the assessee was of the belief that a lower deduction only was warranted, it had to follow the procedure laid down in sub-section (2) of Section 195 of the Act. Learned D.R. stressed that Special Bench in the case of Prasad Productions Ltd. (supra) had clearly observed that an assessee had to take recourse to Section 195(2) where it was of the opinion that part of amount to be paid would be income of the non-residents and if it wanted a deduction at a rate lower than what was prescribed. Reliance was once again placed on the decision of Hon'ble Delhi High Court in the case of Van Oord ACZ India (P.) Ltd. (supra). 23. Per contra, the learned A.R. placing reliance on an order of coordinate Bench of this Tribunal in the case of Frontier Offshore Exploration (India) Ltd. v. DCIT in I.T.A. No. 200/Mds/2009 dated 4th February, 2011, submitted that the decisions relied on by the A.O. as well as ld. CIT(Appeals) and also learned D.R. were all considered by the co-ordinate Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% as the income of such nonresident entity. After considering its earlier decision for assessment year 2003-04, it was held at paras 6 and 7 of the order dated 4th February, 2011, as under:- 6. We have considered the rival submissions. At the outset we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee s own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (P) Ltd. as also taking into consideration the views expressed by the Hon'ble jurisdictional High Court in the case of Hi Tech Arai reported in 321 ITR 477 (Mad) we are of the view that the decision of the co-ordinate Bench of this Tribunal in the assessee s own case for the assessment year 2003-043 would no more constitute good law. To err is human. To continue the error is not bravery. If we are to accept the contention of the Revenue that the provisions of sec. 44BB is relating only to the non-resident for the purpose of his assessment, then one should also keep in mind that the non-resident s assessment comes into play ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax under the Income-tax Act, 1961 on which TDS can be made. A question now arises as to how much of the amounts paid by the assessee to the non-resident is the income chargeable to tax under the Income Tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of sec. 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the Hon'ble jurisdictional High Court in the case of Copes Vulcan Inc., referred to supra. Section 44BB is a special provision to the exclusion of all the contrary provisions provided in sections 28 to 41 and 43 and 43A of the Act. Once the provisions of sections 28 to 41 and sections 43 43A stand excluded, the method of computing the business income of the non-resident on the basis of the books of accounts goes out of the picture. Then it is only the provisions of section 44AD, 44AE 44AF which could be applied an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. In the result, appeal of the Revenue for assessment year 2006- 07 is partly allowed for statistical purposes. I.T.A. No. 1381/Mds/10 (assessment year 2005-06) 29. In this appeal, assessee has taken two effective grounds. In its first ground, grievance of the assessee is that A.O. considered letting out of building as income from house property against income from business shown by it, and this treatment was confirmed by ld. CIT(Appeals). 30. Assessee had, during the relevant previous year, let out a portion of its building, but the rental income therefrom was shown under the head profits and gains from business . This treatment was not allowed by the A.O. according to whom, such rental income could be considered only under the head income from house property . 31. In its appeal before ld. CIT(Appeals), submission of the assessee was that the building was purchased in ordinary course of business and was rented out to generate additional revenue. Hence, as per the assessee, the rental income should be assessed as its business income. However, the CIT(Appeals) was not impressed. According to him, decision of Hon'ble Apex Court in the case of Shambu Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.10.04 5010658.00 5010133.83 (-)524.17 10658 524.17 Grindlay Floating Rate Fund 07.04.04 95202348.91 95202348.29 (0.62) 75433.18 0.62 Kotak Floating Rate Fund 05.05.04 12912708.13 12903753.62 (-)8954.51 42957 .41 8954.51 Kotak Floating Rate Fund 29.9.04 15141314.07 15137071.24 (-)4242.83 141314.07 4242.83 Prudential Floating Rate Fund 16.9.04 2523047.90 2516229.35 (-)6818.55 19798.90 6818.55 Prudential Floating Rate Fund 29.9.04 35569181.12 35511480.83 (-)57700.29 524610 57700.29 Templeton Floating Rate Income Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed as income from house property and disallowance under Section 94(7) of the Act was rightly done by the lower authorities. For the same reasons mentioned therein, ground Nos.1 and 2 for the impugned assessment year are also dismissed. 45. Vide its ground No.3, grievance of the assessee is that ld. CIT(Appeals) confirmed Assessing Officer s stand of not allowing amortization of preference share issue expenses Rs.4,13,25,000/-, under Section 35D of the Act. 46. Short facts apropos are that assessee had, during the relevant previous year, issued non-convertible cumulative preference shares for ₹ 150 Crores. The issue expenses came to ₹ 4,13,25,000/-. The said expenses were classified under the head Other Expenses claimed in full as revenue outgo by the assessee in its return of income. The A.O., during the course of assessment proceedings, put the assessee on notice that decision of Hon'ble Apex Court in the case of Brooke Bond India Limited v. CIT (225 ITR 798) and in the case of Punjab State Industrial Development Corporation Limited v. CIT (225 ITR 792) went against it and such share issue related expenses could only be considered as capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts was not decisive in this regard. Assessee was already in the field of offshore drilling owning a number of rigs and therefore, purchase of another oil rig was definitely an extension of industrial undertaking. Hence, according to him, Section 35D of the Act clearly applied and if not for the relevant previous year, amortization of preference share issue expenses should be allowed, in the year in which oil rig was actually put to use. 49. Per contra, learned D.R. submitted that assessee had never made any claim for amortization of issue expenses in the original return of income. It had chosen to file a letter for claiming amortization under Section 35D of the Act when the Assessing Officer put it on notice that its claim for share issue related expenses as a Revenue outgo could be allowed. According to learned D.R., in view of the decision of Hon'ble Apex Court in the case of Goetze (India) Ltd. v. CIT (284 ITR 323) (SC), such a claim could never have been considered. In any case, according to him, extension of the industrial undertaking could not be considered as complete, just by the purchase of a rig. 50. We have perused the orders and heard the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sub-section (1) thereof which allows amortization of expenses related to issue of share capital, as it stood at the relevant point of time is reproduced hereunder:- 35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), - (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new unit commences production or operation: [ Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effects a ..... 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