ACIT, CIRCLE-4(1), KOLKATA, KOLKATA vs. M/S. GOODRICKE GROUP LTD., KOLKATA

आदेश / O R D E R

PER M. BALAGANESH (A.M):

This appeal in ITA No.895/Kol/2017 for A.Y.2008-09 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-17, Kolkata in appeal No.207/CIT(A)-17/Kol/15-16 dated 15/11/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 29/12/2010 by the ld. Dy. Commissioner of Income Tax-Cir-4, Kolkata (hereinafter referred to as ld. AO). 2. The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of Rs.36,48,000/-

2 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd.,

towards lease rent paid to Koomber Properties (P) Ltd., in the facts and circumstances of the case. 2.1 We have heard the rival submissions. At the outset we find that this issue is covered by the decision of this Tribunal in assessee’s own case for A.Y. 2007-08 in ITA No.971/Kol/2015 dated 04/08/2017. This issue is also covered by the decision of this Tribunal in A.Yrs. 2009-10 to 2011-12 in ITA Nos.2086-2088/Kol/2016 dated 17/08/2018 wherein it was held as under:- “2. It emerges at the outset that Revenue's identical first grievance in all these three cases challenges correctness of CIT(A)'s action reversing disallowance of assessee's least rent(s) of Rs36.48 lakh, Rs 40,02,936/- & Rs55,20,999/-; respectively paid to M/s Koomber Properties & Leasing Co. Pvt. Ltd. Learned Departmental Representative vehemently contends that Assessing Officer had rightly disallowed these three payments in respect of all assessment years which have been wrongly deleted in lower appellate proceedings. We find that the instant issue is already covered as per the tribunal's different orders right from assessment year(s) 1988-89 to 1992-93 onwards regarding the very payee. The Assessing Officer's sole reason for invoking the impugned disallowance is that Revenue's appeals against the said tribunal's decision(s) are pending before Hon'ble Jurisdictional High Court. He further made it clear that the impugned disallowance is meant to protect Revenue's interest only. The CIT(A)'s findings in para-3 page 4 make it clear that assessee has already succeeded on the very issue in case of M/s Koomber Properties & Leasing Co. Pvt. Ltd. He has therefore adopted judicial consistency in the impugned assessment year as well. We therefore find no merit in Revenue's instant common substantive ground for lack of distinction on facts or law in these three assessment year(s). The Revenue's first substantive grievance is therefore rejected in all three cases.

2.2. Respectfully following the same, the ground No.1 raised by the

revenue is dismissed.

CIT(A) was justified in deleting the addition of Rs.40,85,942/- made for

non-deduction of tax at source towards commission paid to non-resident

export agents in the facts and circumstances of the case.

3 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd.,

3.1. We have heard rival submissions. We find that this issue is also

covered by the decision of this Tribunal in assessee’s own case for A.Yrs.

2009-10 and 2010-11 in ITA No.2086-2088/Kol/2016 dated 17/08/2018

wherein it was held as under:-

The A.Rs of the assessee have further stated that the disallowance made by the AO relying on the decisions in the case of Transmission Corporation of India of AP Limited (Supreme Court 239 ITR 587) and on the decision in the case of CIT 'Vs. Samsung Electronics Co. Ltd (Karnataka High Court

4 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., 320 ITR 209) was due to erroneous appreciation of the ratio of the said decisions of the respective Hon'ble Courts. The A.Rs of the assessee have submitted that the Hon'ble Karnataka High Court decision in 320 ITR 209 (supra) was overruled by the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. Vs. CIT and Another, (327 ITR 456). In GE India Technology Centre's case the Hon'ble Court explained the decision in 239 ITR 587 (supra) and observed that in that case the non- residents had entered into a composite contract which consists supply of plant and machinery and Equipments in India and also its installation and commission in India and admitted that the erection and commissioning of plant and machinery and Equipments gave rise to income liable to tax in India. In view thereof it was held that the payment required to be made to the non-residents included an element of income and accordingly section 195(1) is attracted and it is necessary for the tax payer to make an application u/s 195(2) of the Act to the Income Tax Officer and obtain his permission for deducting tax at source at lower amount. The Hon'ble Supreme Court in this case also observed that the decision in Transmission Corporation case was misunderstood by the Hon'ble Kamataka High Court to mean that it is not open for the payer to content that if the amount paid by him to a non-resident is not at all chargeable to tax in India, then no tax at source is required to be deducted from such payment. The Hon'ble Supreme Court further observed that the Hon'ble Karnataka High Court completely loses sight of the plain words of section 195( I) which in clear terms lays down that tax at source is deductible from "sums chargeable" under the provisions of the Act, i.e. chargeable under sections 4, 5 and 9(1) of the IT Act. Thus the ruling of the Hon'ble Karnataka High Court in Samsung Corporation's case that the moment there is a remittance an obligation to deduct tax at source arises was over-ruled. The A.Rs thus submitted that one of the decisions relied by the AO was overruled by the Hon'ble Supreme Court and the decision of the Hon'ble Supreme Court relied by the AO is distinguishable on facts and accordingly the disallowance so made by the AO is not justified. The A.Rs of the appellant have further submitted that an application u/s 195(1) of the Act would attract if and only if the payment to a non-resident partakes the character of income payment and if the payment is not in the nature of income payment at all then section 195( I) of the Act does not operate as the said section says "sum chargeable under the provisions of this Act". In this connection the A.Rs by referring to section 40(a)(i) submit that it also used the expression "sum chargeable under this Act", which shows that the remittance got to be of a trading receipt which is liable to tax in India. As per the A.Rs if the tax is not so assessable there is no question of tax at source being deducted. In support thereof, the A.Rs referred to the decisions of the Hon'ble Supreme Court in the case of Vijay Ship Breaking Corporation and Others Vs. CIT (314 ITR 309). Section 195 casts an obligation that the tax is to be deducted at source to be paid to

5 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., the Revenue by the payer who makes payment to a non-resident if such payments give rise to an income chargeable to tax. Thus the said section according to the A.Rs is to be read in conformity with the charging sections i.e. sections 4,5 & 9 as because of the words "sum chargeable under the provisions of this Act", In view thereof if the commission paid to the export agent does not contain the element of income chargeable to tax in India, the payer cannot be made liable to deduct tax u/s 195 and accordingly such payment cannot be disallowed under clause a(i) of section 40 of the Act. The A.Rs of the appellant also referred to a case which inter alia deals with the issue of deduction of tax at source on commission paid to non-resident agents in the case of Director of Income Tax (International Taxation) Vs. Wizcraft International Entertainment Pvt. Ltd. (364 ITR 227 - Bombay High Court). The fact involved in this case as far as it relates to payment of commission to non-resident agents was that a non- resident agent of artists in foreign countries was engaged by the resident assessee to bring foreign artists to perform in India, but the agent has no participation in the event organized in India. The agent was paid commission for his services rendered outside India. On the fact the question arose as to whether tax is required to be deducted at source from the commission paid to non-resident agent even though tax was deducted at source on the payment made to artists for performance in India. The Hon'ble Tribunal after considering the factual position of the rival contentions concluded that the non-resident agent never took part in the event organized and did not exercise any personal activities in India. All, that, the agent was concerned with the services which were rendered outside India. On the set of facts the CIT(A) and the Tribunal arrived at the conclusion that the said agent did not perform any services in India but they were rendered outside India. The commission income to the agent is not liable to tax in India and there was no obligation on the part of the assessee to deduct tax at source at the time of making the payment. The Hon'ble Court accordingly observed that the findings of fact which are eminently possible in the given facts and circumstances do not raise any substantial question of law and accordingly dismissed the appeal. The A.Rs of the appellant also referred to the decision of the Hon 'ble Supreme Court in the Case of CIT Vs. Toshoku Limited (125 ITR 525) and emphasized the observations of the Court at page 531 which is as under: "In the instant case, the non-resident assessee did not carry on any business operation in the taxable territories. They act as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchaser from abroad does not amount to an operation carried out by the assessee in India as contemplated by cl. (a) of the Explanation to section 9(1)(i) of the Act. The commission amounts which were earned by the non-resident assessee for services rendered outside cannot, therefore, be deemed to be income which are either accrued

6 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., or arisen in India. The High Court was, therefore, right in answering the question against the department. " The A.Rs of the appellant, therefore, submitted that the disallowance of commission paid to non- resident export agents for the services rendered outside India made by the AO for the reason of tax not being deducted at source is not tenable either on facts or in law. The A.Rs of the appellant also submitted that an application u/s 195(2) was made for remittance of commission without deduction of tax at source to its non-resident export agents for subsequent years and such remittance was approved without deduction of tax at source by the Assessing Officer concerned of the International Taxation, Kolkata. The A.Rs of the appellant also submitted that similar disallowance made in the assessment year 2007-08 was deleted by the CIT(Appeals) vide his order dated 27.02.2015 in Appeal No. 582/CIT(A)-2/14-15 wherein he has observed as under: "I have considered the views expressed by the AO and the submissions of the company and I am of the view that the decisions in Transmissions Corporation's case and Samsung Electronics' case relied by the AO has no application to the facts of the present case. In the case of assessee company services had been rendered outside India and the remittance for such services was also made outside India. It is also found from the agreement that the non-resident export agents is not required to be rendered any services in India nor they have any Permanent Establishment in India. Therefore, the remittances made for the services rendered outside India do not partake the Income payments and accordingly it is not taxable in India. It is well settled that if the payments made to non-resident export agents are chargeable to tax in India only then such payments are liable to be taxed in India. Considering the case laws and circular of CBDT cited by the AIR, I am inclined to hold that the commission paid to non-resident agents is not chargeable to tax in India and the operation of section 195 does not arise. I am, therefore, of the view that the provisions of section 40(a)(i) is also not applicable in this case. A similar view was taken by the Income Tax Officer, International Taxation, Kolkata, on the application made u/s. 195(2) of the Act in subsequent years and he authorized the remittance of commission to non- resident agents without deduction of tax at source. Thus I hold that the disallowance made by the AO is liable to be deleted and accordingly I direct the AO to allow deduction of Rs. 11885513/- as claimed by the assessee company. " Therefore, it is seen that my predecessor has taken a view in favour of the assessee. The section 195(1)casts an obligation to deduct tax only when any sum is chargeable to tax under the provisions of the Act and this position in law was confirmed by the Hon'ble Supreme Court in GE India

7 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., Technology Centre Pvt. Ltd's case reported in 327 ITR 456. The fact that the services of the export agent were rendered outside India, they are not maintaining any permanent establishment in India, they are not engaged in any activities in India and the payments were received outside India has not been disputed by the AO. I am, therefore, of the view that section 40(a)(i) is not applicable in this case for commission paid. I, therefore, direct the AO to delete the disallowance of Rs.23,87,696/-." 4. Needless to say, the CIT(A) has adopted the very analogy in assessment year 2010-11 as well. The Revenue's case before us is that the assessee had failed to place on record any non-deduction of TDS certificate u/s. 195(1) of the Act. We find no merit in the instant argument. The fact remains that there is no material on record indicating the assessee's payees to have rendered any service in India so as to be assessable in India. Hon'ble Madras high court in case CIT vs. Faizan Shoes Pvt. Ltd., (2014) 367 ITR 155 (Mad) holds that section 9(1)(i) r.w.s section 9(1)(vii) of the Act does not apply in absence of any services rendered in India. Hon'ble apex court's decision in GE India Technology Centre Pvt. Ltd. Vs. CIT and Another 327 ITR 456 (SC) settles the law that Chapter XVII of the Act applies only in case the payments in issue are taxable in the hands of overseas recipients' hands in India and not otherwise. The assessee has also succeeded on the very issue in preceding assessment year 2007-08 as well. We therefore decline Revenue's instant substantive grounds in both of these captioned appeals.”

3.2. Respectfully following the said decision, the ground No.2 raised by

the revenue is dismissed.

CIT(A) was justified in deleting disallowance made in the sum of

Rs.1,04,61,760/- towards nursery expenses in the facts and

circumstances of the case.

4.1. We have heard rival submissions. We find that this issue is covered

by the decision of this Tribunal in assessee’s own case for A.Y.2009-10 in

ITA No.2086-2088/Kol/2016 dated 17/08/2018 wherein it was held as

under:-

8 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., “7. We now advert to Revenue's fourth and last grievance in assessment year 2009-10 challenging correctness of CIT(A)'s findings deleting nursery expenditure of Rs1,13,48,486/- made by the Assessing Officer in assessment order. There is no dispute that this assessee is growing manufacturing and selling tea. It claimed the impugned nursery expenditure of Rs1,13,48,486/- relating to initial budding of tea. The Assessing Officer disallowed the same on the ground that this nursery head of expenditures gave enduring advantage spread over to number of years not to be forming a revenue expenditure claims. The CIT(A) accepts assessee's argument as follows:- "The ARs of the appellant have filed a detailed submission explaining the nature of expenses and the method of accounting followed in respect of nursery expenses. The ARs have cited decision reported in 262 ITR 388 (Calcutta High Court) in the case of CIT Vs. Tasati Tea Company Ltd. The submissions of the appellant are reproduced as under:-

'The appellant maintains nursery in its gardens for the purpose of replanting and planting of tea bushes in an area where the tea bushes are dead or became useless or in an area previously abandoned and also for extensions planting. The total expenditure incurred on account of maintenance of plants in the nursery was Rs.2,72,80,342/-. The garden-wise expenditure incurred for maintenance and upkeep of the nursery treated as revenue and debited to Profit and Loss A/c was furnished to the Assessing Officer vide letter dated 15.12.2011. The appellant in compliance with the Assessing Officer's query regarding the accounting of nursery expenses the same was explained to him in the said letter. The expenditure incurred on tea bushes used for replanting and replacement of the tea bushes which have died or become useless in an area already planted during the year was Rs.1,13,48,486/- and the said expenditure was charged to the Profit and Loss A/c and claimed it as a deductible expenditure. The Assessing Officer, however, disallowed the said expenditure stating that it was "related to the initial budding of tea which gives advantage to the assessee for number of years." The Assessing Officer in disallowing the said expenditure relied on the ruling of the Hon'ble Calcutta High Court in CIT Vs Tasati Tea Ltd. (262 ITR 388)' The appellant submits that the Assessing Officer misdirected himself in relying on the ratio of thee Hon'ble Calcutta High Court in 262 ITR 388 (supra) and it was due to an erroneous appreciation of the facts and explanation furnished to him in support of the said claim as a deduction. The nursery expenses of Rs.1,13,48,486/- debited to the Profit and Loss A/c was an yearly recurring revenue expenditure and the method of accounting regularly followed by the appellant in respect thereof was also explained to the Assessing Officer at the hearing as follows:

Opening stock of plant in the nursery as on 01.04.2008 1,63,97,003 Add: Cost of plants debited to Profit and Loss A/c 1,07,31,904 Total cost of nursery plants excluding the cost of plants 2,71,28,907 used for extension planting Less: Cost of plants utilized during the year for replanting of tea

9 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., bushes in a planted area not for expansion and planting 1,13,48,486 in a previously abandoned area Stock of plants as at 31.03.2009 1,57,80,421. The cost of tea plants in the nursery utilized for extension planting during the year and debited under the head ' Estates and Development' and the movement of cost of nursery plants during the year was as under:

Cost of stock of plant in nursery as on 01.04.2008 1,63,97,003 Add: Cost of plants raised during the year 1,08,83,339 Less: Cost of plants utilized for refilling and 1,13,48,486 2,72,80,342 replantation in an existing planted area during the year Less: Cost of plants used for extension planting 1,51,435 1,14,99,921 during the year Cost of stock of plants in nursery as at 31.03.2009 1,57,80,421 The method of accounting consistently followed by the appellant in regard to the accounting of nursery expenditure debited to the Profit and Loss A/c is only the cost of maintenance and upkeep of tea plants in the nursery used during the year for replantation or replacement of tea bushes in an area already planted without any expansion or plantation of area which was previously abandoned. Thus the Assessing Officer's disallowance of the said nursery expenditure cannot be justified either on facts or in law. Thus the entire expenditure disallowed by the Assessing Officer be deleted.

Thus the explanation provided to the Assessing Officer was to the effect that the nursery expenses claimed as a revenue expenditure was related to the cost of maintenance and upkeep of immature plants in the nursery used for infilling and replanting of an area already under cultivation during the year where the tea plant are either dead or became permanently useless. It was further explained that in a case where the nursery plants are used for extension planting or in an area previously abandoned such expenditure are treated as capital expenditure under the accounts head "Estates and Development." Thus on the stated facts the decision in 262 ITR 388 (supra) relied by the Assessing Officer in disallowing the nursery expenses was in favour of the appellant's claim of deduction of such expenses.

'The ruling of the Hon'ble Calcutta High Court in 262 ITR 388 (supra) was to the effect that: "... ... if the plants are raised and maintained in a nursery for being utilized for the purpose of replantation without any expansion of the plantation area or replantation in an abandoned area, then it cannot be said to be a capital expenditure. Capital expenditure involves an investment increasing the capital for higher profit. The expansion means extension of plantation to an additional area. An area already abandoned, if replanted would be an expansion of the area under cultivation for the previous year concerned. The maintenance of an area already under cultivation cannot be treated to be an expansion of the plantation nor can it be treated to be an investment or expansion adding to the capital already invested. On the other hand, it would be maintenance of plantation itself and, therefore, revenue expenditure."

10 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd.,

From the above quote it is clear that if the plants raised and maintained in a nursery are to be utilized for replantation of dead or useless bushes within the plantation area, it would not come under rule 8(2) of the Rules. However, if the plants raised and maintained in a nursery are utilized during the year for the purpose of replantation without expansion of the plantation area such expenditure is revenue expenditure. It is to be noted from the order of the Assessing Officer that in disallowing the said expenditure he has not given any reason for holding this expenditure as capital expenditure except saying that it is "initial budding of tea which gives advantage to the assessee for number of years.". The Assessing Officer's such assertion was not supported by any materials on record. The appellant submitted that from the nature and character of the expenditure and the purpose for which nursery is being maintained and the expenditure debited to the Profit and Loss A/c it is clear that it is a revenue expenditure for maintenance of plantation for the purpose of its business. Thus in fact the ruling of the Calcutta High Court in 262 ITR 388 (supra) supports appellant's contention that the expenditure claimed was revenue expenditure. The appellant further submits that the maintenance and upkeep of nursery for the purpose of raising tea bushes for utilization of it in future for replantation of dead or useless bushes was not debited to the Profit and Loss A/c, but it was shown as stock of tea plants in the Balance Sheet under the Account head "Advance". Thus the claim of nursery expenditure as revenue expenditure during the year would come within the scope and ambit of rule 8(2) of the Rules. Further the expenditure on plants raised in the nursery for expansion of the planted area is treated as capital expenditure. It was well settled that upkeep and maintenance expenditure of plants till its bearing is deductible business expenditure. In support there of the following decisions of the Hon'ble Supreme Court are cited: 1. Karim Tharuvi Vs. State of Kerla 48 ITR 83 2. Travancore Rubber and Tea Co. Ltd. Vs. Commissioner of AGIT 41 ITR 751" I have considered the views expressed by the AO and the submissions of the A/R of the appellant. The method of accounting of nursery expenses is also not in dispute. The assessee has been consistently following the said method of accounting. The nursery expenses claimed as a deduction is actually the cost of maintenance and upkeep of immature plants which are used for replanting or infilling, areas where the tea plants are either dead or become permanently useless. There is no expansion or cultivation in a anew area. Accordingly, the nursery expenses have been debited to the P/L Account. The decision of the Hon'ble Calcutta High Court in Tasati Tea Ltd' case reported in 262 ITR 388 is squarely application to the facts of the case.

11 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd., Respectfully following the decision of the Hon'ble Kolkata High Court in case of Tasati Tea Ltd, I direct the AO to delete the disallowance of Rs.1,13,48,486/- on account of 'Nursery expenses'. Heard Learned Departmental Representative strongly seeking to revive the Assessing Officer's action treating the impugned nursery expenditure as capital in nature. Relevant findings perused. The Revenue's only argument is that such nursery expenditure as the one in hand before us ought not to have been treated as a revenue item of claim in the lower appellate proceedings. Coming to enduring advantage spread over number of years hon'ble apex court's decision in Taparia Tools Ltd. Vs. JCIT (2015) 372 ITR 605 (SC) rejects Revenue's similar reasoning in concluding that such an approach does not form a justifiable ground to reject a claim of revenue expenditure. We further reiterate that hon'ble jurisdictional high court's decision in CIT vs.Tasati Tea Ltd (2003) 263 ITR 388 (Cal) also holds similar expenditure to be revenue in nature as discussed in the CIT(A)s adjudication hereinabove. We thus decline Revenue's instant substantive ground as well as main appeal ITA 2086/Kol/2016 for assessment year 2009-10.” 4.2. Respectfully following the same, the ground No.3 raised by the

revenue is dismissed.

not require any specific adjudication.

Order pronounced in the open court on this 26/04/2019

Sd/- Sd/- (ABY T VARKEY) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai; Dated 26/04/2019 Karuna Sr.PS

12 ITA No.895/Kol/2017 M/s. Goodricke Group Ltd.,

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, स�या�पत ��त //True Copy//

(Asstt. Registrar) ITAT, Kolkata