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TMI Blog2021 (4) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... . asked the assessee to provide the details of the payment and the TDS deducted and paid thereof. According to the A.O., the assessee submitted that it has provided a sum of Rs. 60,92,442/- on account of royalty payable to KoPT and the said provision has been created pursuant to the independent auditor's report with which the company does not agree. According to the A.O., this statement clearly shows that a sum of Rs. 60,92,442/- was in the nature of a provision and therefore, an unascertained liability. According to him, the assessee had deducted TDS on the payment of Rs. 2,65,92,864/- while the balance amount of Rs. 60,92,442/- had been provided in the books as "estimated liability' on which TDS was neither deducted nor paid. According to him, it is evident that the sum of Rs. 60,92,442/- is merely an estimated liability arising out of a contractual obligation which is under dispute and the arbitration proceedings are going on and therefore, the fate of this liability is contingent upon the outcome of the arbitration. In other words, this liability has not crystallized as on 31.03.2011 and is a contingent liability on the balance sheet submitted by the assessee; and since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e succeeds on this ground of appeal, then the assessee should be given the consequential relief while computing the 80IA deduction. 6. We have heard both the parties and perused the records. It was brought to our notice that in assessee's own case, similar issue had cropped up in A.Y. 2009-10 wherein the A.O. in similar factual circumstances had disallowed the expenditure and the Ld. CIT(A) had allowed it and this action when challenged by the Revenue before the Tribunal, was adjudicated in assessee's favour by upholding the Ld. CIT(A)'s action by holding as under: "12. We have heard both the parties and perused the records. As per the licence agreement granted to it by KoPT, the assessee is operating Berth No. 12 and the profit of berth No. 12 is eligible for 100% tax holiday. As per the agreement between the KOPT and the assessee, the assessee should obtain independent auditor's report certifying the final royalty payment. Before obtaining the independent auditor's report the assessee had paid royalty as per its own calculation based on the agreement. However, according to assessee, the computation of royalty by the independent auditor was very high. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the A.O. u/s. 40(a)(ia) of the Act amounting to Rs. 1,57,12,909/- due to non-deduction of TDS on payment to M/s. Tata Steel Ltd. 9. Brief facts of the case as noted by the A.O. is that the A.O. on perusal of the details furnished by the assessee noted that the assessee has claimed expenses amounting to Rs. 1,57,12,909/- in its P & L A/c. on account of 'Fees related to Management Contracts'. According to him, it is evident that the assessee was required to deduct TDS on such payment and he asked the assessee to explain why TDS was not deducted on such payment. According to AO, in response the assessee stated that the aforementioned sum represented excess margin money received from M/s. TATA Steel Ltd. which was returned back; and the assessee pointed out that since the income/receipt received from M/s. TATA Steel Ltd. has already been credited as income in the P & L a/c. and since this sum represented excess margin money paid to it, this reversal of Rs. 1,57,12,909/- to M/s. TATA Steel Ltd. cannot be subjected to tax. The A.O. did not accept the submission of the assessee because according to him as the assessee has entered into a contract with M/s. Tata Steel Ltd. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o TSL 5. That the accounting terminology used in the books of accounts cannot determine the real nature of the transaction and that it has been held that the treatment in books of accounts is not the only conclusive and determinative factor to determine the treatment for tax purpose. Case laws relevant to the issue are cited (supra). 6. That TDS was not applicable as the transaction was not in the nature of any payment as specified in the TDS provisions of the Act. I find from the points as delineated above, the nature of payment of Rs. 1,57,12,909/- could not have attracted any provisions of the Act in the matter of TDS since the impugned payment related to a reversal of income as explained supra on which TDS provisions of the Act could not have been applied in any manner. On such facts of the matter, I find the A.O. was on a wrong notion in applying the provisions of section 40(a)(ia) in making the impugned disallowance. In view of the foregoing, the A.O. is directed to delete the impugned disallowance/addition of Rs. 1,57,12,909/-. This ground is allowed." 11. Aggrieved the Revenue is before us. We have heard both the parties and perused the records. We note that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% of the projected aggregate margin in respect of the excess tonnage handled by it. The Ld. A.R. drew our attention to the chart wherein the factual details are provided which is reproduced for ready reference as under: Sl No. Item description Amount (Rs. In crores) Particulars A Aggregate margin/consideration for projected volume 4 The projected margin/consideration is determined on the basis of mutual negotiation between TSL and TMILL (i.e., 32,12,851 metric tons * Rs. 12.45 per metric ton). B Stipulated aggregate margin money as per agreement [i.e., 105% of (A)] since the volume handled is more than projected volume 4.2 As per the terms of the agreement, TMILL is entitled to receive maximum of 5% of the aggregate projected margin for excess tonnage handled. Thus, TMILL is entitled to received maximum Cargo handling Fee of Rs. 4.2 crores from TSL for FY 2010-11. C Aggregate margin for actual volume handled by TMILL during FY 2010-11 5.77 TMILL has handled actual volume of 46,35,476 metric tons during the year at different ports. The same has been recognized as income from port services in the financial statement. D Excess Margin Money debited as management fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, [1971] 82 ITR 363 (SC)]. Thus we find no infirmity in the order of the Ld. CIT(A) and so we confirm the same. 15. Coming to the cross-objection of the assessee is concerned, we note that even though the assessee had raised two grounds of appeal initially, now before us the assessee has raised additional grounds vide letter dated on 04.03.2021. On a perusal of the same, it is noted that these are legal issues and therefore they are admitted. 16. Ground No. 1 of the C.O. of the assessee is against the action of the Ld. CIT(A) in respect to the disallowance made by the A.O. u/s. 14A read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as the Rules). 17. Brief facts of the case as noted by the A.O. is that he noted that the value of investments as on 01.04.2010 and 31.03.2011 stood at Rs. 39,04,43,958/- and Rs. 41,76,71,872 respectively. The A.O. noted that the total amount of tax exempt income from such investment earned by way of dividend amounts to Rs. 58,53,717/-. The A.O. asked the assessee to furnish details of expenses incurred on such investments for earning exempt income. The A.O. noted that pursuant to the same, the assessee replied that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred on earning the dividend income that much of the expenditure which is attributable to the dividend income has to be disallowed. I find the AO has rightly made disallowance under the third limb of Rule 8D(2). However, It is well settled that as per the third limb of Rule 8D(2), 0.5% of investment in shares should be Considered only on the dividend yielding scripts. In this regard the AO is directed to consider only those investments in shares which yielded exempt dividend income for working out the disallowance under the third limb of Rule 8D(2) of the I.T. Rules, 1962. In this regard the AR is also directed to cooperate with the AO in the matter. With regard to the adjustment of disallowance made u/s. 14A in computing the income u/s. 115JB, I find that such adjustment cannot be made as ruled by various judicial decisions. From a plain reading of the provisions of section 115JB, (book profit), there is no scope of making any adjustment on account of disallowance made u/s. 14A of the Act. Therefore, the addition in this regard is directed to be deleted. These grounds are treated as partly allowed." 19. Aggrieved the assessee is before us. We have heard both the parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Assessing Officer ('AO') be directed to recompute the DDT liability by considering the benefit of applicable DTAA between India - Netherlands and India - Germany respectively qua the rate of tax (i.e. 10%) towards payment of dividend to the non-resident shareholders namely NYK Holding Europe B.V., Netherlands and IQ Martrade Holding Und Management GmbH, Germany. Ground 3.2: That, on the facts and in the circumstances of the case and in law, the Assessee further contends that lower rate of taxability at 5% of dividend income shall apply on the dividends paid to NYK Holding Europe B.V. Netherlands, by virtue of the Most Favoured Nation ('MFN') clause available in the Protocol to the DTAA between India and Netherland, as such lower rate has been agreed by the Government of India with another member of the OECD i.e. Slovenia, at a subsequent date. Ground 3.3: That, on the facts and in the circumstances of the case and in law, the Assessee contends that in terms of section 90(2) read with section 10(34) of the Act, the dividend income being taxable in the hands of the non-resident, it could not be subjected to a rate in excess of the rate prescribed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess. Relevant extract of circular is as under:- "Recently a case has come to the notice of the Board where the ITO has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(ii) of the new Act. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains". When the matter came up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided" 57. We also rely on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT (ITA No. 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under appeal." 38. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present ground of appeal is no longer res integra. The education cess being not 'income tax' is allowable as deduction under section 37(1) of the Act. For this, we rely on the judgment of the coordinate Bench of IT AT Kolkata in the case of ITC Limited, ITA No. 685/Kol/2014, order dated 27.11.2018, wherein it was held that education cess is an allowable expenditure under section 37(1) of the Act. Therefore, we direct the assessing officer to verify all the relevant facts and allow education cess as deduction under section 37(1) of the Act." (iii) Tega Industries vs. ACIT (ITA No. 404/Kol/2017)- "We further to notice that assessee has raised an identical additional ground in both cases seeking to claim education cess on provision for Income-tax amount of Rs. 71,65,049/- and Rs. 77,76,699 (assessment year wise); respectively as allowable in computing total income other than MAT u/s. 115JB of the Act. Hon'ble Apex Court's land mark decision National Thermal Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,89,575 at the rate of 16.6%% (including surcharge of 7.5% and cess of 3% on the base rate of 15% as per section 115-O of the Income Tax Act, 1961). The same was deposited in the government exchequer on 06 August 2010. As on the date of declaration of dividend, i.e., 27 July 2010, the shareholding of the Assessee was as follows: SI. No. Name of Shareholder Holding Percentage Corresponding Dividend Paid in FY 2010-11 (INR) A B C [INR 1,80,00,000*C] (i) Tata Steel Limited, India 51% INR 91,80,000 (ii) NYK Holding Europe BV., Netherlands 26% INR 46,80,000 (iii) IQ Martrade Holding Und Management GmbH, Germany 23% INR 41,40,000 Total 100% INR 1,80,00,000 While calculating the DDT liability in respect of non-resident shareholders [i.e., Sl. (i) and (i) above], the company has inadvertently considered the rate of tax as per section 115-O of the Act, instead of the rates prescribed under the relevant articles of the corresponding Double Tax Avoidance Agreements ('DTAAs') entered into between the Government of India and Netherlands/Germany, respectively." 27. Since this issue has not been considered by the AO, therefore in the light of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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