DCIT, CIRCLE - 7(1), KOLKATA, KOLKATA vs. M/S. BRITANNIA INDUSTRIES LIMITED , KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri S.S.Godara, Judicial Member and Shri, M. Balaganesh, Accountant Member ITA No.1390-1392/Kol/2017 Assessment Years :2009-10 to 2011-12

DCIT, Circle-7(1), V/s. M/s Britannia Industries Aayakar Bhawan, 5th Ltd. 5/1 Hungeford Floor, P-7, Chowringhee Stree,Kolkata-17 Square, Kolkata-69 [PAN No.AABCB 2066 P] .. अपीलाथ� /Appellant ��यथ�/Respondent

Shri Dilip S Damle, AR आवेदक क� ओर से/By Assessee Shri P.K. Srihari, CIT-DR राज�व क� ओर से/By Respondent 13-11-2018 सुनवाई क� तार�ख/Date of Hearing 22-11-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER BENCH:- These three Revenue’s appeal(s) for assessment years 2009-10 to 2011-12 arise against the Commissioner of Income Tax (Appeals)-22 Kolkata’s separate orders; all dated 28.03.2017 in case No.84/CIT(A)-22/09- 10/13-14/16-17/Kol;218/CIT(A)/22/10-11/14-15/16-17/Kol & 192/CIT(A)/22/11- 12/14-15/16-17/Kol respectively involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 2 first substantive ground in all these three appeal(s) seeks to revive the Transfer Pricing Officer (TPO) / Assessing Officer’s action making arm’s length price’s (ALP) adjustment of interest on loans and corporate guarantee(s) in case of assessee’s overseas associate enterprise treated as international transactions u/s 92B of the Act. Relevant to adjustment amounts qua former head of loan interest are 57,52,409/-,₹35,23,720/- and ₹36,60,695/- as against the latter component of corporate guarantees(s) sums of ₹2,47,79,679/-; ₹3,57,20,816/- and ₹1,96,69,635/- (assessment year-wise) respectively. The CIT(A)’s identical discussion on former limb of loan interest adjustment component in AY 2009-10 reads as follows:- “07.DECISION 1. I have carefully considered the submissions of the appellant-company in the light of the adjustments made by the Ld. TPO/AO. The international transaction in question in these grounds is the interest charged by the appellant on the loans advanced to its AE, BAMPL which was denominated in USD currency. During the relevant year the appellant had charged interest rate of 6% on the loans advanced to the AE and it was not a case of granting interest free advance/loan as discussed in the TPO’s order. From the TP study report, I find that the appellant benchmarked the transaction by applying CUP method. From the Economic Analysis I find that the appellant benchmarked the loan initially by applying Internal CUP method. The appellant considered BAMPL to be the tested party. The appellant compared the interest rate that it charged from its AE with the interest rate which third parties, like banks & financial institutions charged from the AEs. Since the interest rate charged by the appellant was found to be higher, the transactions was reported to be at arm’s length. The appellant further supplemented the benchmarking exercise by applying External CUP Method. The appellant this time considered itself to be the tested party. The appellant obtained the interest rates which it would derive had it maintained USD denominated FNCR/NER deposits. The external interest rates worked out between 2.25% to 3%. Since the actual interest rate received from AE was 6%, therefore even under External CUP, it was concluded that the international transactions was at arm’s length. 2. On examination of the transfer pricing order, I find that the Ld.TPO was not in agreement with the assessee’s contentions and the TP study of the appellant. According to the Ld.TPO the application of internal as well as external CUP was Inappropriate. Thereafter the Ld.TPO goes on to elaborate as to why CUP method as the most appropriate method. The Ld.TPO further discusses as to why the business interest/shareholder activity theory could not be applied to the international transaction involving benchmarking of loans. According to the Ld.TPO the CUP method was to be applied and the arm’s length interest rate was to be computed as a combination of the cost of funds in the hands of the assessee and a credit spread for taking the risk of advancing loan to the AE. The Ld.TPO after elaborate discussion, which has already been extracted above, concluded that the cost of funds in the hands of the appellant was L + 60 bps and the appropriate credit spread was 700 bps. The Ld.TPO by taking the prevailing US LIBOR for FY 2008-09 at 510 bps, computed the arm’s length interest rate at 12.70%. As the interest rate charged by the appellant was not

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 3 comparable with the arm’s length interest rate of Rs.57,52,409/- computed by him, the Ld. TPO proposed adjustment of Rs.29,69,409/-. 3. On examination of appellant’s submissions and TPO’s order, I find that the observations made by the Ld. TPO in the impugned transfer pricing order suffered from apparent infirmities & contradictions. I note that the Ld. TPO discussed in great detail as to why the method adopted by the appellant was not appropriate and why CUP Method was the most appropriate method. I however find that even the appellant had applied the CUP method for benchmarking the transaction and therefore the Ld. TPO’s argument that the method applied by the appellant was not appropriate is apparently without logic and contrary to his own findings. I also note that the Ld. TPO has elaborated on the business interest argument. The Ld. TPO also observed that the appellant had argued that loans were advanced for business purposes and therefore no interest was charged thereon. This assertion of the Ld. TPPO is found to be contrary to the facts on record because undeniably the appellant did charge interest on loan given to AE and it was benchmarked applying CUP method. It was not the appellant’s case that the loan advanced was a shareholder activity. I therefore find merit in the appellant’s contention that the Ld. TPO framed the transfer pricing assessment without taking due note of the fact of the appellant’s case but recoded his finding on the basis of some assumed facts not borne out from the records. 4. The Ld. TPO further held that the loan was to be benchmarked based on the cost of funds of the appellant. In this regard I find that the appellant had furnished before the Ld. TPO the cost of its external borrowings which worked out to 2.6%. The Ld. TPO however seemed to have not taken cognizance of this fact and instead worked it out to LIBO (US) +60 bps. Even with regard to the rate of LIBOR 9US0, I find that the Ld. TPO did not discuss his source o information, based on which he arrived at USD LIBOR of 510 bps for FY 2008-09. On the other hand, the appellant has furnished data from Bloomberg Terminal which shows that the average USD LIBOR during FY 2008-09 was 1.13%. The appellant also furnished the details of LIBOR (US) which was actually charged by banks/FIs from its AE, BAMPL which also worked out in the rage of 125 bps to 150 bps. On examination of the TP order, I also find that at para 42 the Ld.TPO himself also observed that the prevailing USD LIBOR rate during FY 2008-09 was 150-200 bps. On these facts therefore I find that the TPO’s action of adopting LIBOR at the rate of 510 bps was wholly inappropriate and unjustified. Based on the data available before me, I direct the Ld. AO/TPO to adopt the LIBOR (US) for the relevant FY 2008-09 at 113 bps. 5. In view of the above, I find that if the LIBOR (US) is taken at 113 bps, then the arm’s length interest rate even based on Ld. TPO’s methodology works out to 8.74%. Since the actual interest charged by the appellant i.e. 6%, is within the +/-5% range, the transaction is at arm’s length and therefore no transfer pricing adjustment was called for. In view of the facts set out in the foregoing therefore, I direct the Ld.TPO/AO to delete the addition of Rs.57,52,409/-. 6. It may be also relevant to add that the question of manner & methodology of benchmarking loans advanced to AEs is a vexed issue and has been debated by various High Courts & Benches of the Income-tax Tribunal. From the judicial precedents which are available in the public domain, I find that the settled view is that the foreign currency denominated loans advanced to AEs should be benchmarked against the relevant currency denominated LIBOR rate, which is the present case is US LIBOR. The relevant judicial precedents in this regard are as follows:- • Cotton Naturals (I) Pvt Ltd [TS-117-HC-2015(DEL)-TP] • Tata Autocomp Systems Ltd. (TS-45-HC-2015 (BOM)-TP) • Varroc Engineering Pt. Ltd. vs., ACIT (ITAT Pune) ITA No.2482/PN/2012)

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 4 • Bhansall & Co. (TS-461-ITAT-2014 (Mum)-TP) • M/s Four Soft Ltd vs DCIT (ITA No.1495/HYD/2010) • DCIT vs. Tech Mhindra Ltd (ITA No.1176/Mum/2010) • Mahindra & Mahindra Ltd. vs DCIT (ITA No.7999/Mum/2011) • Cotton Naturals (I) Pvt. Ltd. vs DCIT, Circle 3(1) (ITA No.5855/Del/2012) • Tata Autocomp Systems Ltd. vs. ACIT, (2012-(052)-SOT-0048-TBOM) • Hinduja Global Solutions Ltd. vs. Addl. CIT, (ITA No.254/Mum/2013) • Aurinopro Solutions Ltd. vs. Addl. CIT 9ITA No.7872/Mum/2011) • VVF Ltd. vs. DCIT (2010-TIOL-55-ITAT-M(UM) • M/s Ajthent Technologies Pvt. Ltd. v/s ITO (2010-TII-134-ITAT-Del-TP) 7. In view of the above and respectfully following the judgments of the High Courts & Income-tax Appellate Tribunal, I hold that the interest rate charged by the appellant from AE was required to be benchmarked against the prevailing LIBOR (US) in FY 2008-09, i.e. 1.13%. Since the interest rate charged by the appellant on the loans granted to BAMPL was 6%; I hold that no transfer pricing adjustment was called for in respect of appellant’s loan transactions with its AE conducted during FY 2008-09. In view of the above directions, Ground Nos. 2 to 7 are therefore allowed.” 3. We have given our thoughtful consideration to rival contentions. Some key facts emerge from these case file(s). The assessee had indeed charged its associates enterprises the interest in question @ 6%. The lower authorities had made the impugned adjustment by computing ALP thereupon @ 8.73%. The assessee had adopted Comparable Uncontrolled Price (CUP) method for its above benchmark. The CIT DR fails to dispute the clinching fact that the impugned adjustment is well within the tolerable margin of +/.5% relevant to the impugned assessment year. The assessee has further proved the average US Dollar LIBOR (US) during the relevant financial year to be 1.13% only. The question as to whether foreign currency denominated loan are to be benchmarked as per LIBOR or not stands answered in assessee’s favour as per a catena of case laws (supra). We hold in these peculiar facts and circumstances that the CIT(A) has rightly deleted the impugned loan interest ALP adjustment in all these three years. Mr. Srihari submits at this stage that the CIT(A) ought to have remanded the case back to the TPO for appropriate adjudication of all the LIBOR (US) rate. We find no force in Revenue’s instant half-hearted argument in absence of any specific particulars challenging correctness of CIT(A)’s findings on the LIBOR rates in issue. We accordingly

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 5 reject Revenue’s corresponding substantial ground in all these assessment year(s). 4. We now advert to the latter “alp” component of corporate guarantee(s) involving respective adjustments of ₹2,47,79,679/-, ₹3,57,20,816/- & ₹1,96,69,635 (supra) in all the three impugned assessment years. Suffice to say, tribunal’s various decisions i.e. Bharti Airtel Ltd. vs. ACIT (161 TTJ 428) (ITAT Delhi), Redington India Ltd. vs. ACIT (41 ITR (T) 646) (ITAT Chennai), Micro Ink Ltd. vs. ACIT (157 ITD 132) (ITAT Ahd) and Videocoon Industries Ltd. vs. ACIT (55 taxmann.com 263) (ITAT Mumbai) unanimously hold that a corporate guarantee is not an international transaction within the meaning of Section 92B of the Act. 5. Mr. Srihari vehemently contends at this stage that the relevant explanation in Sec. 92B inserted in the Act by the Finance Act 2012 covers corporate guarantee as well. We find that this tribunal’s co-ordinate bench’s decision in EIH Ltd. vs. DCIT/Kol/2016 holds that the said explanations applies from financial year 2012-13 only without having any retrospective effect. We are also informed that the department’s special leave petition on the very issue stands admitted its honble apex court. We find no merit in the instant plea as mere admission of a special leave petition does not amounted to change in law. We therefore conclude that CIT(A) has rightly treated the corporate guarantee in question to be not in the nature of international transactions in all three assessment year(s). The Revenue failed in its corresponding substantive ground in these three appeal(s) therefrom. 6. Next comes Revenue’s second substantive ground in former two assessment year(s) challenging the CIT(A)’s order deleting proportionate interest and administrative expenditure disallowance u/s 14A r.w.s. 8D involving corresponding figure(s) of ₹1,44,25,599/- and ₹83,52,517/- in earlier and ₹3,92,00,128 and ₹1,30,22,820/- latter assessment year; respectively. The CIT(A)’s findings under challenge in assessment year 2009-10 as identical those in 2010-11 read as follows:- “13. DECISION:

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 6 1. I have carefully examined the contentions of the Ld. ARs and perused the impugned order passed by the Ld. AO. From the assessment order it transpires that in the computation of income filed with the return, the appellant had suo moto offered disallowance of Rs.37,75,120/- under Section 14A of the Income- tax Act, 1961. From the P&*L A/c of the assessee, the AO noted that during the relevant year the assessee earned dividend of Rs.1273.66 lacs in respect of which exemption was claimed. The Ld. AO required the assessee to provide the details as to how the disallowance u/s.14A offered in the return of income was arrived at. The appellant furnished its reply dated 27.02.2013. As per the assessee’s reply the investments as on 31.03.2009 were to the order of Rs.423.09 crores of which investments having cost of Rs.367.27 crores were capable of yielding tax free income. According to the assessee’s submissions, the opening investment capable of yielding tax free income was Rs.247.71 crores. The incremental investment made during the relevant year was therefore Rs.119.56 crores. The ld. AO was informed that interest bearing loan funds had reduced substantially during the relevant year which indicated that fresh investments were not made out of borrowings. The contentions of the assessee however did not convince the Ld. and therefore the Ld. AO proceeded to make the disallowance by invoking Rule 8D(2) of the IT Rules, 1962. The AO did not find that any expenditure was directly attributable to earning dividend income. He however noted that gross interest expenditure during the relevant year was Rs.1169.63 lacs and interest income was Rs.435.19 lacs; leaving net interest expenditure of Rs.734.44 lacs. The AO further noted that assessee had paid finance lease charges of Rs.28.86 lacs against vehicle finance, Rs.50.21 lacs was paid towards delayed payment of indirect taxes and Rs.85.30 lacs was paid as interest on ECB and the AO admitted that these interest payments were linked with business activit9y of the assessee. Excluding such interest payments, the AO found that the net interest expense of Rs.570.07 lacs was incurred for mixed purpose which was liable to be considered for applying Rule 8D(2)(ii). Accordingly with reference to net interest expense of Rs.570.07 lacs, the AO worked out interest disallowance of Rs.1,44,25,599/-. 2. In their oral & written submissions, the Ld. ARs have strongly contested the invocation of Rule 8D(2)(ii) by the Ld. AO in the impugned order. Referring to historical facts of the appellant’s case, the Ld. ARs pointed out that the appellant ha consistently been investing its surplus funds in acquiring shares, securities & units of mutual funds from which the assessee has been earning dividend income. In the course of appellate proceedings, the Ld. ARs filed a comparative chart of investments made by the appellant for the period AY 2005-06 to 2008-09 and corresponding figures of the own funds, loan funds, dividend earned & interest paid. Referring to the said chart, the Ld. ARs pointed out that in the past assessments for AYs 2005-06 to 2008-09, the appellant had held substantial investments and these investments were made out of the appellant’s own funds which always substantially exceeded the cost of investments. For the sake of clarity of the issue, the comparative figures are extracted below: Particulars 05-06 06-07 07-08 Assessment Year 08-09 Own funds 44,34,433 54,90,088 61,47,367 75,57,293 Investments 19,65,109 16,87,893 25,42,477 24,77,368 Loans 61,379 93,583 47,813 10,60,975 Net interest 9,390 12,997 39,530 32,621 Dividend 61,774 63,824 59,029 1,3,683 3. The Ld. ARs of the appellant also furnished copies of the assessment orders for the earlier years in support of the contention that even though in the earlier years

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 7 the assessee ad never found any evidence to prove that borrowed funds were utilized in acquiring investments which produced tax free dividend. The Ld. ARs particularly pointed out that in the immediately preceding year i.e. AY 2008-09; the assessee had incurred net interest expense of Rs.326.21 lacs and earned dividend of Rs.14366.83 lacs. In the immediately preceding year the cost of investment in tax free income yielding securities were Rs.247.71 crores and own funds were Rs.755.22 crores. Since the AO did not find any proximate cause or nexus between investments mad and use of borrowed funds; in the order passed u/s 143(3) the AO did not make any interest disallowance by invoking Rule 8D(2)(ii), even though the relevant Rule 8D was applicable to the assessment proceedings for AY 2008-09. 4. I further find that as on 31.03.2009, investments capable of yielding exempt income went up to Rs.367.27 crores from Rs.247.71 crores as on 01.04.2008. As such there was admittedly net increase of Rs.119.56 crores in the cost of investment capable of yielding exempt income. From the Balance Sheet, I however note that the borrowed funds of the appellant which were to the order of Rs.106.10 crores on 31.03.2008 had come down to only Rs.265.16 crores by 31.03.2009. Meaning thereby, during the relevant year the appellant’s borrowings reduced by Rs.80.94 crores. These facts which are apparent from the Balance Sheet therefore lead to only conclusion that even though during the year under consideration the appellant’s net investments in dividend yielding securities substantially went up, these investments were not made out of borrowed funds inasmuch as the borrowings recorded net decrease of Rs.81 crores during the year under consideration. I therefore find force in the Ld. ARs submissions that the borrowed funds were not used in making or acquiring investments in dividend yielding assets during the year under consideration. 5. As regards the opening investments having cost of Rs.24.72 crores, I find that in the assessment u/s. 143(3) for AY 2008-09, the AO had not found any evidence that these investments were acquired out of borrowed funds and in that view of the matter no disallowance out of interest paid was made by invoking Rule 8D(2)(ii) in the assessment for AY 2008-09. In the circumstances if at the time of making of investments, no proximate cause or nexus was found between use of borrowed funds and making investments; then in the later years interest disallowance is not permissible merely on theoretical application of Rule 8D(2)(ii). I also find that the appellant’s own funds as on 31.03.2009 were to the order of Rs.824.54 crores whereas investment capable of yielding exempt income were only Rs.367.27 crores. The appellant own funds in form of capital & reserves were thus substantially more than the investments capable of yielding dividend income and therefore presumption that had to be applied on the fact of the appellant’s case is that the investments, yielding tax free income were made or acquired out of appellant’s own funds. The appellant’s reliance on the recent judgement of the Calcutta High Court in the case of CIT vs. Rasio Ltd (ITA No.109 of 2016) dated 15.02.2017 appeared to be very relevant. In this judgment the jurisdictional Calcutta High Court had benefit of considering the earlier judgment of the same court in the case of Dhauka & Sons (339 ITR 319) as also the judgment of the Bombay High Court in the case of CIT vs. HDFC Bank (383 ITR 529). In the case of Rasoi Ltd (supra), the High Court found that assessee’s own funds were higher than the investments in tax free securities and in that view of the matter, the interest disallowance made u/s. 14A read with Rule 8D(2)(ii) which was deleted by the ITAT was upheld by the Calcutta High Court. The relevant findings of the Hon'ble Calcutta High Court was as follows: “It appears for both the assessment years the Appellate Authority held that there was no finding of direct nexus between the borrowed fund and investment in shares. The assessee’s own funds were far in excess of the average total investments. There could not be any presumption of utilization

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 8 of borrowed funds. Hence disallowance under section 14A read with Rule 8D(2)(ii) was deleted while disallowance of indir4ect expenses of Rs.1,82,346/- by application of Rule 8D()(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself. On appeal preferred by the Revenue the Tribunal held as followed:- ‘We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr. DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs.365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue…. …’ We find that this case has yielded concurrent findings of facts regarding expenditure incurred y the assessee for the purpose of earning the exempt income, by the Appellate Authority and the Tribunal. As such there is no scope for interference with such concurrent findings of facts. We, therefore, are not satisfied that the case involves any substantial question of law. The application and appeal are thus dismissed.” 6. In the light of above decision of the jurisdictional High Court which squarely applies to the appellant’s facts, no disallowance of Rs.144,25,599/- out of interest paid was called for and accordingly the same is directed to be deleted. 7. As regards disallowance of Rs.1,53,74,495/- made Rule 8D(2)(iii), I note that the said disallowance has been made by the AO by applying it on the entire cost of investments which were capable of yielding tax free income. I note that the appellant had suo moto offered disallowance of Rs.37,75,120/- at the time of filing of return. In the course of assessment the assessee had substantiated the basis adopted for offering the disallowance u/s.14A of the Act. I also note that the methodology adopted by the appellant for disallowing administrative expenses u/s 14A was consistently followed and accepted in the appellant’s regular assessments for all the past five years including AY 2008-09, when Rule 8D came in force. In the course of assessment the assessee had supported the disallowance offered with reference to entries in books and other supporting document. On perusal of the assessment order, I find that the Ld. AO did not objectively deal with the explanation furnished in support of the basis adopted by the appellant in offering amount disallowed out of administrative expenses. In fact I find that the AO rejected the appellant’s explanations by passing a non- speaking order in a perfunctory manner. At the same time however I find that the basis adopted by the appellant cannot be considered to be conclusive. No doubt the appellant had taken into account the cost & expenses incurred in relation to payments made to employees of the Treasury Department; I however find that other administrative costs & overheads such as audit fees etc. was not taken into account by the appellant in arriving at the amount disallowable u/s. 14A of the Act. I note that the issue of making disallowance u/s. 14A read with Rule 8D is a vexed issue which has been debated and deliberated by various Courts & Tribunals in the country. In so far as appellate authorities functioning under the charge of the Calcutta High Court is concerned, the issue stands decided in terms of the ratio laid down by Calcutta High Court in the case of CIT vs. REI

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 9 Agro Ltd (ITA No.220 of 2013). In the said case, the Hon'ble ITAT, Kolkata held that even where disallowance u/s.14A red with Rule 8D was to be made, the disallowance should be made with reference to average cost of investments which actually yielded or produced tax free income during the relevant year and it was not open for the Ld. AO to make the disallowance with reference to average cost of all investments inter alia including investments which did not yield tax free income. On appeal u/s. 260A, the jurisdictional Calcutta High Court upheld the order of the hon'ble ITA, Kolkata and dismissed the Department’s appeal. The same view has been expressed by the High Courts at Delhi, Gujarat & Allahabad in the cases of CIT vs. Holcim India Pvt. Ltd (272 CTR 282), CIT vs. Cortech Energy Pvt Ltd. (223 taxman 130) and CIT vs. Shivam Motors (P) Ltd (230 Taxman 63) respectively. 8. In the course of appellate proceedings, the Ld. AR was therefore directed to file statement of amount disallowable as per the ratio laid down by the Calcutta High Court in the case of CIT vs. REI Agro Ltd (supra). On perusal of the said statement, it was noted that the assessee earned dividend income only from 23 investments and average cost of investments which actually produced tax free income was Rs.140,,43,96,000/-. Applying 0.5% to the said average cost of investments, the amount disallowable under Rule 8D(2)(iii) works out to Rs.70,21,978/-. The AO is accordingly directed to restrict the overall disallowance under Rule 8D(2)(iii) to R.70,21,978/-. Ground No.17 is partly allowed.” 7. Mr. Srihari vehement argument regarding this issue is that the Assessing Officer had rightly made the impugned disallowance as per prescribed formula under Rule 8D(2)(ii) and (iii) of the IT Rules, 1962. There can hardly be any dispute about the basic principle that sec. 14A r.w.s. Rule 8D of the IT Rules comes into play in case of assessee deriving exempt income without disallowing corresponding expenditure in its books of account. The dispute herein is that of proportionate interest and administrative expenditure. We find from the CIT(A)’s above extracted discussion that assessee had successfully proved its non interest bearing funds to be much more than investments as per the relevant compilation in preceding paragraph. The Revenue fails to dispute all these clinching figure(s) during the course of hearing. Coupled with this, we find that the CIT(A) has followed this tribunal’s decision in REI Agro Ltd. vs. DCIT (2013) 35 taxmann.com 404/144 ITD 141 (Kol) regarding administrative expenditure disallowance that only dividend income yielding investment are to be considered has been affirmed in hon'ble jurisdictional high court. We conclude in these facts and circumstances that the CIT(A) has rightly deleted the impugned 14A r.w.s 8D

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 10 disallowance regarding proportionate interest and administrative expenses in both assessment year(s) of 2009-10 and 2010-11. 8. The Revenue’s third substantive ground in assessment year 2009-10 involving ITA No.1390/Kol2017 challenges the CIT(A)’s findings deleting prior period expenses disallowance of ₹22,50,000/- as follows:- “20 DECISION 1. I have carefully examined the submissions of the Ld. ARs and also perused the assessment order wherein the Ld. AO has discussed is reasons justifying the disallowance of Rs.22,15,000 out of prior period expenses. The amount disallowed relates to debit note raised for repairs & maintenance by appellant’s contract manufacturer, M/s Vinpack (I) Pvt. Ltd. Although the Ld. AO admitted that the assessee had furnished its explanation with regard to its contention that the liability to pay expense had crystallized 2008-09, the Ld. AO was not convinced with these contentions on the ground that assessee could not produce any supporting evidence substantiating its claim. In absence of the relevant evidence, the Ld. AO was not convinced that liability to pay had crystallized during the year under consideration. 2. From the materials and documents placed before me, I however find that the explanations put forth in the course of appellate proceedings were exactly the same as were submitted before the AO. From the foregoing submissions, it was noted that M/s Vinpack (I) Pvt Ltd had carried out extensive repair to its two oven lines which were manufacturing Marie & Tiger Biscuits for the appellant. The repairs & overhauling work was conducted in FY 2007-08 the appellant’s cost. Within two months of such overhaul, the production line producing Tiger Biscuits developed trouble due to unforeseen circumstances. Vinpack (I) Pvt Ltd, the contract manufacturer, initially incurred the repairing costs for setting right the troubles but requested the applicant to reimburse the cost of such repairs. The request for reimbursement was initially rejected by the appellant since such cost was unforeseen and not intended to be incurred. However, in view of the extraordinary circumstances in which the expenditure was required to be incurred, joint deliberations were conducted and ultimately in December 2008; it was mutually agreed that the repairs had to be carried out due to extraordinary circumstances which were not anticipated and beyond the control. Accordingly in December 2008, the appellant agreed to reimburse the repairs cost to Vinpack (I) Pvt Ltd. 3. I find that the same explanations and supporting documents were furnished before the Ld. AO in the course of assessment. These documents provide the historical background in which the assessee had agreed to reimburse the cost of repairs to Vinpack (I) Pvt Ltd in the relevant year. The Ld. did not point out any infirmity or falsity in the contentions put forth but refused to accept the contention only on the spacious plea that the assessee did not furnish any supporting evidence. However in the impugned order the Ld. AO did not spell out as to what specific document or evidence of any specific nature, he expected the assessee to produce and which the appellant failed to do. The AO has also not discussed what precise document or evidence he had directed the appellant to furnish in support of the explanation which the appellant failed to furnish in response. From the details & explanations furnished, I find that there were sufficient and cogent documents available which explained the necessity of incurring the expenditure on repairs & maintenance. The copies of the email correspondence between the parties, debit notes and explanations furnished before the AO were sufficient to explain the fact that the appellant had agreed to reimburse the cost of repairs to

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 11 Vinpack (I) Pvt. Ltd in the month of December 2008 and therefore there is merit in the Ld. ARs, submissions that the liability on the ape’s part to incur repair cost had accrued & crystallized during the previous year relevant to AY 2009-10. The appellant’s claim in this behalf is squarely covered by the judgments of the Calcutta High Court in the case of CIT v. Kanoria Chemicals & Industries Ltd (106 ITR 314) & CIT v. Todi Tea Co. Ltd (105 Taxman 697). For the reasons set in the foregoing therefore, the AO is directed to allow the deduction for repairs expenses of Rs.22,15,000/-. Ground No.20 is therefore allowed.” Mr. Shrihari’s sole argument during the course of hearing is that the assessee follows mercantile system of accounting and therefore, it was supposed to claim the impugned expenditure in the year of accrual only. He fails to rebut the crucial findings of fact that the assessee had successfully proved during the course of lower appellate proceedings that the impugned liability crystallized during the relevant previous year only. This is further an instance of revenue’s neutral issue since assessee has been assessed at the maximum marginal rate in both in the year of accrual as well as in the impugned assessment year. We therefore decline the Revenue’s instant third substantive ground as well. 9. The Revenue’s last substantive ground raised in the first AY 2009-10 reverse the CIT(A)’s findings treating assessee’s compensation received from M/s Danone as a capital receipt not chargeable to tax. Its case is that assessee is the owner of the relevant “Tiger” trademark and therefore the Assessing Officer had rightly taxed the impugned receipts as long term capital gains (LTCG) as deleted in CIT(A)’s order as follow:- “27. DECISION: 1. I have carefully examined the submissions of the Ld. ARs and perused the assessment order wherein the Ld. AO has discussed his reasons for assessing Rs.22.79 crores as appellant's Income by way of Long Term Capital Gains. From the Impugned order it appeared that on 14.04.2009; the appellant entered Into a Settlement Agreement with Group Danone ('GD') to settle the pending litigations relating to infringement of IP rights connected with the Trademark & Logo "TIGER" litigation was pending before the Courts at Singapore & Malaysia. Pursuant to the said Agreement, GD paid sum of Euro 3.5 million to the appellant which it claimed as capital receipt not liable to tax. In the impugned order the Ld. AO in principle accepted that the litigation between the appellant and GD pertained to the capital asset being trademark & logo connected with "TIGER" brand under which the appellant was selling glucose biscuits. The Ld. AO also admitted in principle that since the litigation pertained to the capital asset, the entire transaction was in the capital field and therefore In his opinion the compensation which the appellant received under the Settlement Agreement was liable to be considered for taxation

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 12 under the head "Capital Gains". I note that even though the Ld. AO had required the appellant to explain why the compensation should not be assessed as revenue Income. After examining the submissions of the appellant, the Ld. AO had in principle accepted that the amount received was not assessable as a revenue receipt liable for tax as business Income. The Ld. AO however held that In terms of the Settlement Agreement dated 14.04.2009, the appellant had surrendered its right to GD and as a consequence capital gain arose In the present case. The Ld. AO did not accept the appellant's contention that the settlement amount received from GD was a capital receipt simplicitor and therefore not liable to tax. According to the Ld. AO the very fact that under the Settlement Agreement, the appellant took back its Suit coupled with the fact that GD agreed to give back rights In the trademark "TIGER" to the appellant showed that In substance the said payment was made towards a transfer of a capital asset. According to the Ld. AO under the Settlement Agreement, the appellant had given up its right to claim damages and GD also transferred the right In trademark "TIGER" logo back to the appellant. According to Ld. AO merely because GD chose to pay the negotiated sum without accepting any Infringement or violation of rights In the trademarks did not change the fact that there was a transfer of capital asset within the meaning of Section 2(47) of the Act. In view of these conclusions the Ld. AO held that settlement amount of Euro 3.5 million equivalent to Rs.22.79 crores was assessable as capital gains. Since the TIGER brand was held by the appellant for a period more than three years, such capital gain was assessed as "Long Term capital Gains”. 2. On consideration of the submissions of the Ld. ARs and the Ld. AO's order, I find that the AO's order suffers from apparent infirmities and contradictions. It appears that the Ld. AO did not correctly appreciate the true purport and nature of the Settlement Agreement and the covenants which the Parties agreed thereunder. From the submissions of the Ld. ARs, it is apparent that both the appellant as well as GD were carrying on business of manufacture, sale & marketing of bakery products. The appellant which Is one of the leading biscuit manufacturer in India, was also selling Its bakery products outside India and for that purpose the appellant had contemplated of registering IP rights connected with the logo "TIGER" under which It was selling its glucose biscuits In India & abroad. When the appellant attempted to obtain IP rights connected with the logo "TIGER" In the jurisdictions of Singapore & Malaysia, Its applications were blocked by the authorities since Similar logo had been registered in the name of Generale Biscuit & Danone Singapore Pte ltd which were the affiliates of GD. As a consequence the appellant could not register its trademark TIGER and market its TIGER biscuits In South Asian markets. Aggrieved by the acts of GD, suits were filed against the GD affiliates and Individuals in the Courts of Singapore & Kuala Lumpur and the Courts were requested to grant Injunction against the use of TIGER label by GD affiliates. 3. While the disputes between the appellant and GD were pending in the Courts, GD sold Its worldwide biscuit business to Kraft Group of Companies, USA. Since GD was exiting the biscuit business, it desired to settle all pending litigations so that it could transfer its worldwide biscuit business without unforeseen liabilities. In these circumstances therefore, the Settlement Agreement was executed on 14.04.2009 between the appellant and GD, in terms whereof the appellant withdrew the suits & complaints only against GD which were before the High Courts at Singapore & Kuala Lumpur. The terms of settlement however made It clear that the terms of settlement pertained for the business & actions done upto 30.11.2007 by GD and the appellant was free to take steps or actions against Kraft group of companies for the period thereafter. The Settlement Agreement stated that GD agreed to pay Euro 3.5 million for settlement of IP disputes without admitting that the claims made by the appellant were valid.

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 13

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 14 not the owner of the IP rights connected with TIGER logo in these foreign jurisdictions. It is material that under the Settlement Agreement, the appellant and GD had agreed to settle their disputes concerning IP proceedings as listed In Schedule - 1 & Schedule - 2 clarified In no uncertain terms that sum of Euro 3.5 million was being paid by GD to the appellant for releasing the GD and its affiliates from all claims connected with IP disputes and IP proceedings which were Instituted In connection with use of TIGER logo. In the circumstances, it was evident that the consideration which flowed under the agreement was from GD in favour of the appellant and not vice versa. In addition to making the payment for settlement of IP disputes, GD and Its affiliates additionally agreed that they would cease to use the logo TIGER anywhere In the world and permit the appellant to use TIGER logo. In the circumstances if there was any case for release, relinquishment or surrender of rights then such surrender or release was by GD and not by the appellant. The ld. AO has rightly made reference to provisions of Section 2(47) of the Act which define the expression "transfer". According to Section 2(47) of the Act, any release, relinquishment or extinguishment of any rights in any property, constitutes "transfer” of a "capital asset". Even If it is assumed that under the Settlement Agreement, GD and Its affiliates agreed to release or relinquish their right to use TIGER logo and permitted BIL to use such logo, even then it can only lead to conclusion that such release of relinquishment resulted in transfer of a capital asset by GD and not by the appellant. Plain reading of the Settlement Agreement, shows that for releasing or relinquishing their rights in TIGER logo, the appellant did not pay any consideration. I also note that under the Settlement Agreement, the appellant did not release or relinquish his rights in any of the IP rights which the appellant held and which were connected with TIGER logo. In the circumstances when there was no release or relinquishment of any rights by the appellant in any property, there did not occur transfer of capital asset by the appellant. The Settlement Amount of Euro 3.5 million therefore did not constitute consideration received for "transferring" any capital asset by the appellant. 6. For the reasons set out In the foregoing therefore I have no hesitation in holding that the Settlement amount of Euro 3.5 million was not assessable to tax as appellant's income under the head "Capital Gains" since there was no transfer of any capital asset by the appellant In favour of GO or anyone else. 7. With regard to the Issue of taxability of the sum of Rs.22.79 crores, I find that Schedule - 2 of the Settlement Agreement clearly provided that the Settlement amount was paid for releasing GO, its affiliates and Individuals from IP disputes & JP proceedings. In Schedule - 1, the parties listed out the legal proceedings which were pending In the High Courts of Singapore & Kuala Lumpur at the material time. The documents on record show that the Settlement amount was paid to the appellant for its agreeing to withdraw Suits then pending before the High Courts. By accepting the settlement sum, the appellant had agreed not to proceed with the Suits Instituted in the Courts against GD and its affiliates. The appellant's right to sue or right to Institute legal proceedings was a personal right or privilege which in itself constituted valuable right and therefore a "capital asset" under Section 2(14) of the Act. The said right could be exercised for protecting appellant's various rights connected with its business which Inter alia included IP rights for marketing its products. However under the Settlement Agreement, the appellant did not transfer, release or relinquish any of its rights in the trademarks, logos etc. connected with its business but the appellant accepted a lump sum to withdraw its legal proceedings which it had Instituted to secure & protect its IP rights connected with the logo "TIGER". Under the Settlement Agreement, the appellant received specified settlement amount for agreeing to withdraw suits filed in the courts of law. In addition it also secured the consent of the opposite party in terms of which GD agreed not to use TIGER logo

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 15 anywhere in the world. In the circumstances I find that apart from protecting the appellant's subsisting IP rights connected with TIGER trademark and logo, the appellant additionally received Euro 3.5 million for withdrawing or settling its legal suits under the Settlement Agreement. Since the "right to sue" did not have any cost of acquisition measurable in monetary terms, computation provisions relating to capital gains were not capable of being invoked. In view of the judgment of the Supreme Court In the case of CIT Vs. B.C. Srinivasa Shetty (128 ITR 194), no capital gain was chargeable to tax when the appellant received Settlement amount of Euro 3.5 million. In the said judgment the Supreme Court observed as follows: “... Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions In the Income-tax Act, where under each head of Income the charging provision is accompanied by a set of provisions for computing the Income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section there Is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of Income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether Ii is possible to apply the computation provision at all if a certain Interpretation is placed on the charging provision. That pertains to the fundamental integrity of the statutory scheme provided for each head ." 8. I also note that the jurisdictional ITAT, Kolkata In the case of DCIT Vs Azlmganj Estates Pvt Ltd (ITA No. 735/Kol/2012) had upheld the order of CIT(Appeals) wherein it was held that right to sue is a valuable right and any amount received under the settlement for giving up such right is a capital receipt simplicitor not liable to tax . 9. The same view has been advocated by the ITAT, Jaipur in the case of Satyam Food Specialities (P) Ltd (57 taxmann.com 194) wherein the ITAT held as follows: "All the clauses of the agreement read together reflect that the real intent, objective and purpose of the payment of compensation as per settlement agreement was to ensure withdrawal of all the pending litigation by assessee, from various forums Instituted for breach of terms or conditions. The dominant consideration for compensation being surrendering the right to sue; its neither in lieu of surrender of any agency or agreement for non-competition and thus, the compensation neither fell in the ambit of section 28(ii)(c) nor under section 28(va). In our considered view the compensation In question was meant, Intended and paid (or withdrawal of aforesaid litigation instituted by assessee which

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 16 could have resulted In many adverse consequences for the reputation of Coca Cola/Atlantic besides entailing huge cost and efforts of litigation. Relinquishment of right to sue is neither a capital asset nor taxable u/s 28 which provides specific: types or receipt to be held taxable as business Income. Relinquishment of right to sue does not find any mention therein. In this eventuality we have no hesitation to hold that the Impugned amount of Rs. 8,16,22,040/- Is a capital receipt not liable to Income Tax." 10. The same principle was again stated by the Authority for Advance Ruling in the case of Aberdeen Claims Administration Inc. (65 taxmann.com 246) wherein it held as follows: "Similar question was Involved In Lead Counsel of Qualified Settlement Fund (QSF), In re [2016J 65 taxmann.com 197 (AAR - New Delhi)] wherein venous arguments were analyzed relating to taxability of Settlement amount received from Satyam and PwC in similar circumstances, i.e., receipt of settlement amount as a result of settlement agreement and approval by the US Court after the complaints were filed In respect of fraud committed by Satyam/PwC. It was held therein that if right to sue is considered as a capital asset covered under the definition of transfer within the meaning of section 2(47), its cost of acquisition cannot be determined. In the absence of such cost of acquisition, the computation provisions failed and capital gains cannot be calculated. Therefore, right to sue cannot be subjected to Income tax under the head 'capital gains' . … . In this case also, similar view is taken that the nature of settlement amount is of capital receipt and it cannot be categorized as Income. Further this amount has been received against surrender of right to sue which cannot be considered for the purpose of capital gains. ... The fact remains that the Aberdeen investors entered into a settlement agreement with Satyam considering the time, effort and costs involved in litigation and the agreement provided for a full, final and complete resolution of all claims asserted or which could have been asserted with respect to the released claims. The Aberdeen Investors fully, finally and forever waived, released, discharged and dismissed each and every of their legal claims against Satyam and PwC. This was also agreed vice versa. It is clear, therefore, that the settlement amounts have been received not as part of business profit or to compensate the future income but as a result of surrender of the claim against Satyam and PwC. Surely, even In accordance with the principle of surrogatum such amount Is not assessable as income because It does not replace any business Income. " 11. Applying the ratio laid down in these decisions to the facts of the appellant's case, I find that the settlement amount was received by the appellant for agreeing to withdraw the suits filed and not to proceed in any judicial forum with regard to IP disputes connected with TIGER logo. Respectfully following the ratio laid down in the above judgments and for the reasons discussed in the foregoing, I hold that the sum of Rs.22.79 crores was a capital receipt and not liable .to be taxed as 'Long term Capital Gain' as assessed by the Ld.AO. Additional Ground Nos. 1 to 3 are therefore allowed.” 10. We have given our thoughtful considerations to rival contentions. We make it clear first of all that there is no dispute between the parties about the

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 17 nature of assessee’s litigation pending in courts at Malaysia and Singapore. The question between the parties is about the nature of assessee’s compensation received amounting to ₹22.79 crores. The Revenue’s case is that the Assessing Officer had rightly assessed the same as LTCG since derived against usage of “Tiger” trademark. We find no merit in Revenue’s instant arguments since CIT(A)’s detailed discussion in light of the relevant agreement clause(s) has made it clear that the assessee had received the impugned settlement sum in lieu of surrendering its right to sue than former any transfer giving rise to capital receipt only as held in hon'ble Gujarat high court’s decision in Baroda Cement & Chemicals Ltd. ( 158 ITR 636 (Guj) followed by various tribunals’ decisions. We thus conclude that CIT(A) has rightly held the assessee to have received the impugned sum not in lieu of conceding its right to sue in foreign courts. We thus confirm the CIT(A)’s order under challenge holding the impugned receipt to be capital receipt. The Revenue fails in its instant last substantive ground as well as first appeal ITA No.1390/Kol/2017.

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 18 Alipore 24 Paraganas South. While admitting the Suit and granting the stay against the order of Estate Officer, the Ld. District Court however required the appellant to make payment of Rs.663.44 lacs to the Court. Being aggrieved by the order of the District Judge the appellant filed appeal in Calcutta High Court which modified the terms of the order passed by the District Judge. The High Court required the appellant to deposit Rs.263.44 lacs with the District Judge Alipore and additionally furnish bank guarantee for Rs.300 lacs. In compliance with the High Court directions, the appellant deposited Rs.263.44 lacs with the District Judge, Alipore 24 Paraganas South on 30.11.2008. Being aggrieved by the High Court's order, an appeal was filed by KPT before the Supreme Court. The Hon'ble Supreme Court by its order dated 11.02.2010 further modified the terms of High Court's order and required the appellant to deposit additional sum of Rs.300 lacs with the District Judge, AIipore 24 Paraganas South and furnish bank guarantee for Rs.100 lacs. The additional sum of Rs.300 lacs was further deposited during the relevant year. In this factual background the appellant made aggregate payment of Rs.563.44 lacs and the same was debited In the Profit & Loss Account and deduction therefor was claimed. 2. From the documents on record, it therefore transpires that the payment of Rs.563.44 lacs had to be made to comply with the orders passed by the Hon'bre Calcutta High Court & Hon'ble Supreme Court and the payments were not made in compliance with any agreement or arrangement between the appellant and KPT. It is true that the appellant had occupied the premises belonging to KPT which were used for carrying on assessee's manufacturing business. However the appellant had continued to occupy the premises after the expiry of lease and revised terms were not agreed upon between the parties. During the relevant year KPT, a local authority, had unilaterally passed an order requiring the appellant to pay the damages for use of premises and the claim made by KPT was resisted by the appellant by filing suit. While admitting the suit, the Court had required the appellant to Irrevocably pay certain sums since the Court found that the appellant would ultimately be required to pay some amount for the use of the premises during the period of occupation. The amount ordered to be paid by the District Judge, Alipore 24 Paraganas South however underwent modifications when the Hon'ble Calcutta High Court & Hon'ble Supreme Court passed the orders requiring the appellant to pay sums as they deemed fit. However once the orders were passed by the Hon'ble Calcutta High Court & Hon'ble Supreme Court, the appellant was legally bound to comply with the orders of the Court and deposit the sums with the District Judge, Alipore 24 Paraganas South. After the orders were passed the appellant did not have any discretion of not complying with the orders of the Courts and could not have paid or deposited sum lower than directed by the respective Courts. The appellant was required to pay the Court ordered sums to comply with the statutory requirements and any non-compliance would have amounted to contempt. The payments so made could not be said to be payments made under any agreement or arrangement for the use of land as contemplated by Explanation (1) to Section 194-I of the Income-tax Act, 1961. I also find merit in the submissions of the Ld. A.Rs that in law the dispute between the appellant and KPT related to occupation of the factory premises for the period beyond the expiry of lease. Admittedly during such time, the appellant was not the lessee but continued to occupy the premises. Under the legal provisions any amount paid by the person for the period beyond lease Is termed as 'mesne profit' and not 'rent'. In the present case the dispute between the appellant and KPT pertained to payment of such 'mesne profit' which in law could not be regarded as 'rent'. 3. Moreover the payment was required to be made at the direction of the Court during the pendency of legal proceedings for its quantification. I also find that in terms of the directions of the Court the payment was made by the appellant not to

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 19 KPT to whom the land belonged but the payment was required to be made to the District Judge, Alipore 24 Paraganas South who did not have any economic interest in the amount deposited. In the circumstances although the District Judge, Alipore 24 Paraganas South was the 'payee', but the Income represented by the payment made did not belong to the District Judge, Allpore 24 Parganas South. Provisions of Chapter XVII of the Act provide for collection & recovery of taxes and Chapter XVII-B deals with deduction of tax at source. However before tax is deducted, It is necessary to ensure that the tax is deducted on behalf of the payee who in law is assessable in respect of the Income represented by the payment. In the circumstances unless the payment received by the payee is found to be legally chargeable to tax as his Income, then the tax deduction provisions are not applicable. In the present case admittedly the disputes between the appellant and KPT were sub-judice and the Courts had required the appellant to make payments with the District Judge Alipore who was adjudicating the disputes. Although the High Court and the Supreme Court required the appellant to make payments against the demand raised by KPT, the payment was directed to be deposited with the District Judge, Alipore 24 Paraganas South and not to KPT. The said District Judge, Alipore did not have any beneficial Interest In the amount deposited nor did the payment receive constituted Income of the said District Judge. In the circumstances therefore the appellant could not have deducted the tax when it made the payment to the District Judge, Allpore 24 Paraganas South In compliance with directions of the High Court & Supreme Court. The appellant's reliance on the judgment of the Delhi High Court in the case of UCO Bank Vs UOI (51 taxmann.com 253) therefore appeared to be relevant. Although the facts of that case were slightly different yet in my opinion the ratio laid down in the said judgment has equal application. In that decision the Court was concerned about the liability to deduct tax from the interest payable on the FDs standing the name of the Registrar General of Delhi High Court with whom the amounts were deposited by litigants in compliance with Court directions. It was the contention of the Commissioner that the Bank should have deducted u/s 194A In respect of Interest payable on the FDs held in the name of Registrar General. On consideration of the provisions of the Act, the Court held that in absence of any assessee the machinery provisions for deduction of tax to his credit are Ineffective. The Court noted that the payee in that case was Registrar General who could not be regarded as an 'assessee' in respect of sums credited and therefore when the payee was found to be not an 'assessee' In respect of sum credited, the tax deduction provisions were in applicable. The same position Is obtained In the present case as well. In this case the High Court & the Supreme Court had required the appellant to deposit the amount claimed by KPT with the District Judge Alipore till the disputes were resolved. In terms of the Court directions, the payments were irrevocably made to the District Judge, who was not as 'assessee' liable to pay tax on the said sum. In that view of the matter the tax deduction provisions of Section 194-I were Inapplicable. For these reasons therefore I hold that the appellant did not commit default of non-deduction of tax u/s 1941 and consequently provisions of Section 40(a)(ia) could not be Invoked. The Ld. AO is therefore directed delete the disallowance of Rs.563.44 lacs. Ground Nos. 17 & 18 are allowed.” 12. We have given our thoughtful considerations to rival contentions. Learned CIT-DR vehemently contends during the course of hearing that the Assessing Officer had rightly disallowed assessee’s payments made to District Judge of Alipore on account of non-deduction of TDS thereupon. He fails to rebut the basic fact that the assessee’s payments made to “KPT” are on

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 20 account of interlocutory directions passed in the ongoing litigation which is always subject to final outcome. The same is therefore in the nature of an interim measure to protect the interest of litigating parties. Chapter-XVII-B of the Act however prescribes TDS deduction on such amount of payments under various heads. We make it clear that there is no clarity as rightly held by the CIT(A) about the application of the TDS charging provision since the assessee has made payments in favour of district civil court registry only. We accordingly express our agreement with the CIT(A)’s findings deleting the impugned disallowance in this reason above. The Revenue’s second appeal ITA No.1391/Kol/2017 is accordingly declined.

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 21 ₹12,00,98,294/-. The CIT(A)’s discussion qua the instant issue reads as follows:- “16. DECISION: 1. I have carefully examined the contentions of the Ld. ARs and perused the Impugned order passed by the Ld. AO. I have also examined the explanations and the documentary evidences which the appellant had furnished before the Ld. AO In the course of assessment and examined applicable legal provisions. Although the Ld. AO apparently took lot of pain In ascertaining the alleged Instances of short deduction of tax and thereby making disallowance; I find that there were several infirmities and inaccuracies in the Ld. AO's order which resulted in disallowance of Rs.1200 lacs, which Is apparently not supported by the legal provisions. 2. For example In respect of conversion charges paid to RKM Foods, the Ld. AO disallowed Rs.1,09,57,000/- on the ground that the appellant should have deducted u/s 194C at the rate of 2% on the invoiced amount of Rs.3,98,66,635/- whereas the appellant had deducted tax of only Rs.5,78,193/- and thereby resultant short deduction was Rs.2,19,140/-. It was however noted that TDS officer of RKM Foods at Palampur had Issued certificate u/s 197 of the Act on 5th August 2010 authorizing the assessee to deduct tax at source at the rate of 1% upto the Invoice value of Rs.400 lacs. In light of the said certificate I therefore find that the appellant's liability u/s 194C in respect of RKM Foods was only Rs.3,98,666 whereas the appellant had actually deducted tax of Rs.5,78,193/- in view of certificate issued u/s 197. Even though the appellant had placed such certificate u/s 197 before the Ld. AO, he had not taken into account the certificate issued by the Departmental authorities. Similar lower deduction certificates were also furnished from other parties as well but in arriving at the, amount disallowable u/s 40(a)(ia), the Ld. AO had not taken cognizance of all such certificates, except in the case of Real Bakers Pvt Ltd. I therefore find force in the Ld. A.Rs submissions that the amount of short deduction of tax as computed by the Ld. AO was factually Incorrect resulting In excessive disallowance. 3. I also note from the details furnished before the Ld. AO that the appellant had furnished the PANs of the payees while furnishing the break-up of various expenses from which it was evident that In many Instances the payments were made to proprietary concerns of individual assessees where the tax rate prescribed u/s 194C was 1% but the Ld. AO computed the amount of short deduction on the plea that the tax was deductible at source @ 2%. I also note that in none of charts extracted the assessee order, the Ld. AO incorporated PAN of the payees even though in the details furnished the appellant had provided PAN of the respective payees. Due to incorrect adoption of TDS rate @ 2% Instead of 1%, the Ld. AO made the disallowance which was not permissible. 4. Section 40(a)(ia) provides for making disallowance of expenditure wherever an assessee commits default of not deducting the tax or having deducted, not paying the tax. The relevant provision of Section 40(a)(ia) reads as follows: any Interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax Is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified In sub-section (1) of section 139

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Provided that where In respect of any such sum, tax has been deducted In any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the Income of the previous year In which such tax has been paid. On plain reading of Section 40(a)(ia) It Is therefore apparent that the default contemplated by Section 40(a)(ia) is only two fold; I.e. (a) where the assessee has failed to deduct; and (b) having deducted the tax the assessee has failed to deposit the tax. Section 40(a)(ia) being deeming provisions of the Act which provides for disallowance of even legitimate business expenditure; the same has to be Interpreted strictly. Save & except the default specifically enumerated in the Section, the scope and ambit of such deeming provision cannot be expanded. In the present case It Is admitted position that in each and every case as listed out by the Ld. AO In the charts extracted In the Impugned order, the Ld. AO has admitted that the appellant had deducted tax at source. It is however the Ld. AO's case that there was a short deduction of tax as compared with which the appellant should have deducted at the rates prescribe XVII-B. In other words, the default allegedly committed by the short deduction of tax. In law, short deduction of tax cannot be equated default of non- deduction of tax. In the circumstances therefore I find force in the submissions of the Ld. AR that the appellant had not committed any provided for by Section 40(a)(ia) of the Act and therefore entire disallowance of Rs.12,00,98,294/- was legally untenable. 5. I find that this Issue also stands covered by the judgment of the Calcutta High Court In the case of CIT Vs S.K. Tekrlwal (361 ITR 432) wherein upheld the following findings of the Hon'ble ITAT, Kolkata which are now binding precedent: “ … We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, Inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay Into Government Account. There is nothing section to treat, inter alia, the assessee as defaulter where there is a shortfall in with regard to the shortfall, it cannot be assumed that there is a default as the is not as required by or under the Act, but the facts Is that this expression, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub- section 3(1) of section 139. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments failing under various TDS provisions, the assessee can be declared to be an assessee in default u/s. 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act Accordingly, we confirm the order of err (A) allowing the claim of assessee and this issue of revenue's appeal is dismissed.” 6. For the reasons set out above and respectfully following the judgment of the jurisdictional High Court, I hold that in the facts of the present case provisions of Section 40(a)(ia) could not be Invoked. The Ld. AO Is therefore directed delete the disallowance of Rs.12,00,98,294/-. Ground Nos. 20 .21 are allowed.” It has come on record that CIT(A) has followed hon'ble jurisdictional high court’s decision supra in rejecting sec. 40(a)(ia) application on account of

ITA No.1390-1392/Kol/2017 A.Ys 09-10 to 11-12 DCIT Cir-7(1) Kol. Vs. M/s Britannia Industries. Ltd. Page 23 short deduction of TDS. We conclude in these facts and circumstances that the CIT(A) has rightly granted relief to the assessee. The Revenue’s fails in its last appeal ITA No.1392/Kol/2017 therefore.