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Income Tax Appellate Tribunal, DELHI
Before: SH. N.K.BILLAIYA & SH. ANUBHAV SHARMA
PER ANUBHAV SHARMA, JM:
The revenue has preferred this appeal against order dated 09.03.2015 in appeal no. 405/13-14 for assessment year 2010-11 passed by Commissioner of Income Tax (Appeals)-11, New Delhi (hereinafter referred to as the “First
2 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. Appellate Authority or in short FAA) in which appeal preferred by assessee against order dated 28.02.2014 passed by Additional CIT, Range-23, New Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was partly allowed.
The facts in brief are assessee is a Multi-State Cooperative Society engaged in the manufacturing of chemical fertilizers through its seven operating units at different locations . A return declaring income of Rs. 723,16,22,035/- was filed on 13.10.2010 which was revised later on 14.01.2011 showing income of Rs. 5,77,15,94,117/-. Revised return filed by the assessee was processed u/s 143(1) and thereafter case was selected for scrutiny. Statutory notice u/s 143(2)/ 141(1) of the Act were issued which was complied by the assessee.
2.1 Considering the submissions of the assessee and consequent upon persuing the original and revised computation of taxable income filed, it was observed by the Ld. AO that revision of return of income was made mainly to exclude the business income which was shown in the original return earned from its PE in Oman. This income was excluded from the taxable income in India under Article 11(4) read with Article 7 of the DTAA between India and Oman.
2.2 The Ld. AO initiated its finding with observation that in its earlier returns of income filed for the preceding years, assessee itself included the dividend earned from Oman in its gross receipt which was claimed exempt under Section 90 of the I.T. Act on the ground that deemed tax has been paid in Oman. In this backdrop, it was assumed by the Ld. AO that in the year under consideration assessee has changed its stand by revising the return and excluding the above dividend income with the sole intention to avoid excess payment of tax due to the fact that there was revision in the tax rate in Oman with effect from 1.1.2010 from 30% to 12% which ultimately deprived the assessee of tax credit to the
3 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. extent of 18% i.e. 30% tax rate in India minus 12% tax rate in Oman in respect of the deemed tax payable in Oman on the above dividend income.
2.3 It was observed by the Ld. AO while passing the assessment order that as per Article 25(2) of the DTAA with Oman, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in the Sultanate of Oman, whether directly or by deduction which shall not exceed that part of the income tax, computed before the deduction is given, which is attributable to the income which may be taxed in the Sultanate of Oman. In view of these provisions, it was held by the Ld. AO that assessee is eligible for credit of taxes paid or payable in Oman in terms of Article 25(2) and 25(4) of the DTAA. 2.4 Thus in respect of dividend income from Joint venture with OMIFCO, Oman, it was held by the Ld. AO that assessee has not paid tax either in the source country or in India. It was further noted by the Ld. AO that as per the Oman tax laws, any PE (Permanent Establishment) in Oman which is supported by foreign company or establishment becomes taxable entity under Oman Tax Laws, though the article 8(bis) exempts the taxation of dividend income of companies in Oman. Assessee had shown dividend received from overseas joint venture - OMIFCO, Oman to the tune of Rs.144,11,72,850/- in the Income Tax Return of PE in Oman but no tax was paid on the amount of this dividend in accordance with the article 8(bis) of the Income tax law in Oman. This dividend was also exempt in the hands of assessee in view of the DTAA agreement. 2.5 Thus for making the disallowance to earn the exempt income, the AO relied upon the provisions of Section 14A read with Rule 8D (2)(ii) and Rule 8D(2)(iii) and made the total disallowance of Rs.3133.42 lac in which disallowance as per Rule 8D(2)(ii) was of Rs.2865.43 lac and disallowance as per Rule 8D(2)(iii) was Rs.365.19 lac.
4 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. 3. In the appeal, the Ld. F.A.A. considered the challenge of the assessee to the order of ld. AO, on the ground that there was incorrect inclusion of investment in foreign P.E. in Oman by computing disallowance under Rule 8D (2)(iii) and (ii). It was observed by the Ld. F.A.A that the ld. A.O. has included the value of investments in the PE in Oman as exempt Income investments u/s. 14A on the ground that “in effect, no tax has been paid by the assessee on the dividend income received from OMIFCO, Oman and for all purpose the dividend is exempt from tax... ”. The Ld. FAA held that the said income is not exempt and is subjected to tax under Indian Tax Laws, by necessary implication the same cannot be considered for disallowance u/s. 14A as the said section only covers the investments, the income from which does not form part of the Total Income (i.e. they do not enter enter the computation of Total Income at all u/s. 10 to 13A). It is an incontrovertible fact that neither Dividend from Foreign Companies nor Business Income of the PE is eligible from' exclusion from Total Income or exempt from taxes under section 10 to 13A. The relief from Double Taxation which is taken by means of a Tax credit u/s. 90(2) read with Article 25(2) & (4) of the DTAA with Oman cannot alter the nature of income from taxable to exempt (and thus come under the sweep of section 14A) even if finally after taking the tax credit, there is no tax liability to pay any Indian taxes. Ld. FAA also observed that this issue has also been dealt at length by its Ld. Predecessor vide his order for AY 2008-09 and 2009-10 and has decided the Issue in favour of the appellant. Accordingly, it was held that investment in the appellant’s PE in Oman since held taxable in India shall be treated accordingly and as per law for working out disallowance u/s 14A.
Next Ld. AO had made a disallowance to the extent of 10% of horticulture expenses totaling sum of Rs. 60,70,000/- treating them personal in nature on the ground of non-maintenance of log book.
5 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. 4.1 The ld. F.A.A. observed the submissions and various judicial pronouncements relied upon by the Ld. AR and held that Ld. AO while making the disallowance has failed to bring on record any specific finding that element of personal nature is involved in these expenses and addition is based upon the fact that no employee wise / premise wise log book has been maintained by the assessee in respect of these expenses. Whereas to substantiate the claim, the assessee had explained the circumstances under which the incurrence of these expenses is necessary considering the requirement of Central Pollution Control board and Environment Protection Laws. Considering the above facts, the addition made by the AO of Rs. 60,70,000/- was deleted.
Now before the Tribunal, Revenue has raised following grounds of appeal :
"1. Whether the Ld. CIT(A), on the facts and in the circumstances of the case, has erred in deleting the disallowance of an amount of Rs. 2865.43 lac made by the Assessing Officer u/s 14- A read with Rule 8-D(2)(ii), as the assessee has claimed deduction of expenses in relation to income which is exempt from tax." "2. Whether the Ld. CIT(A), on law also, has erred in deleting the disallowance of an amount of Rs. 2865.43 lac made by the Assessing Officer u/s 14-A read with Rule 8-D(2)(ii), as the assessee has claimed deduction of expenses in relation to income which is exempt from tax." "3. Whether the Ld.CIT(A), on the facts and in the circumstances of the case, has erred in deleting the addition of Rs. 60,70,000/- made by the AO on account of 10% of horticulture expenses as element of personal use cannot be ruled out because assessee has not maintained specific premise-wise and employee-wise separate "log book" in this regard." "4. Whether the Ld.CIT(A), on law, has erred in deleting the addition of Rs. 60,70,000/- made by the AO on account of 10% of horticulture expenses as element of personal use cannot be ruled out because assessee has not maintained specific premise-wise and employee-wise separate "log book" in this regard."
6 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. "5. The appellant craves leave to add, alter or amend any of the ground(s) of appeal before or during the course of hearing of the appeal".
Heard the counsel for the assessee and Ld. CIT-DR for the revenue. Ld. CIT-DR raising question to the order of Ld. F.A.A. submitted that without substantiated reasons to differentiate, the Ld. F.A.A. has deleted the disallowance made by the Ld. AO u/s 14 read with Rule 8D(2)(ii) and erred in deleting addition made by AO on account of excessive horticulture expenses, which had element of personal use.
On the other hand, in regard to ground no. 1 & 2 Ld. Counsel for the assesee submitted that the dispute is already adjudicated in favour of the assessee and covered by order dated 25.01.2021 passed by Delhi Bench of Tribunal in assessee’s own case for assessment year 2011-12 in ITA No. 6083/Del/2017 and order dated 15.05.2018 passed by Delhi Bench of Tribunal in assessee’s own case for assessment year 2009-10 in ITA No. 4490/Del./2014 and order dated 30.11.2016 read along with order dated 05.04.2018 passed by Delhi Bench of the Tribunal in assessee’s own case for assessment year 2008-09 in ITA No. 2394 and 3012/Del/2013. It was also submitted that assessee has on its own made disallowance equivalent to exempt dividend income.
In regard to ground no. 3 and 4 it was submitted that Horticulture expenses were made around plant and township maintained by the assessee and they are allowable u/s 37(1) of the Act and there is no element of “personal expense” in the hands of assessee company. Reliance was placed on the judgment of Hon’ble Delhi High Court in Gujarat Nargian Ltd. vs. DCIT citation 67 SOT 325 (Delhi) and GAIL India Ltd. vs. DCIT ITA No. 4454/Del/2013 (Delhi Tribunal) also Sayaji Iron and Engineering Company vs. CIT 253 ITR 749 (Guj.).
7 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. 9. Giving thoughtful consideration to the matter on record and going through the precedent cited it is quite evident that as far as ground no 1 and 2 arising our of the issue of dividend income from investment in the P.E. in Oman is concerned the same being included in the taxable income and thereafter rebate of tax has been allowed to the assessee by means of tax credit u/s 90(2) read with Article 25(2) and (4) of the Indo Oman DTAA, the dividend earned can be said to be exempt from tax and but the provisions of section 14A would not be attracted. This consistent view has been taken by the predecessor of Ld. F.A.A. for the assessment year 2008-09 and 2009-10 and also upheld in assessee’s own case by order dated 30.11.2016 in ITA No. 2394/Del/2013 and ITA No. 3012/Del/2-013. No Reason is cited by revenue to distinguish the same. Thus, in regard to ground no. 1 and 2, the appeal of revenue has no substance to interfere in the Ld FAA order.
In regard to ground no. 3 and 4, at the outset, the Tribunal is of considered opinion that assessee is not a private entity but a Multi State Co- operative Society registered under Multi State Co-operative Society’s Act, 2002 and thereby bound by statutory provisions with regard to utilization of funds so there cannot be any presumption of use of the funds for any private use. Ld FAA rightly observed that Ld. AO while making the disallowance has failed to bring on record any specific finding that element of personal nature is involved in these expenses
10.1 Also the assessee is engaged in the manufacturing of chemical fertilizers and certainly the premises of the assessee require maintenance of extensive green channels and green belts for balancing environmental hazards which are quite probable, due to the nature of activities of the assessee company. The ld. F.A.A has taken into consideration the requirements laid by Central Pollution Control board and Environment Protection Laws to justify the expenses.
8 ITA No. 2786/Del./2015 M/s. Indian Farmer Fertilizer Co-operative ltd. 10.2 Lastly there is no prudence in expecting the assessee to maintain log book for employee wise / premise wise expenditure, as expenditure was for maintenance of the green belts in the township and manufacturing units and not on identifiable individuals. Thus, in regard to grounds no. 3 & 4 also there is no substance to interfere in the Ld. FAA order.
As a consequence of above, the appeal of revenue is dismissed.
Order pronounced and signed in open court on this 25th day of March, 2022.
Sd/- Sd/- (N.K.BILLAIYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 25 .03.2022 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI