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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
The appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai, dated 31.08.2017 in for the assessment year 2012-13 passed U/s.250(6) r.w.s. 143(3) of the Act. The assessee has also raised cross objection in support of the order of the Ld.CIT(A).
CO No.17/Chny/2018 2.1 Revenue’s Appeal:- The Revenue has raised several grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in deleting the addition made by the Ld.AO amounting to Rs.1,00,31,950/- towards disallowance of ‘other expenses’ for non-deduction of tax at source.
2.2 Assessee’s Cross Objection:- The assessee has raised the following grounds in its cross objection:
1. The order of the CIT(A) is based on the correct facts and applicable laws of the Income Tax Act, 1961 as well as the Indian Contract Act, 1872.
2. The CIT(A) has rightly deleted the artificial addition based on the wrong interpretation and allowed the appeal.
3. The Assessing Officer ought not to have filed the Miscellaneous Petition against the Appellate Order and the Respondent submits that the Miscellaneous Petition was dismissed by the Tribunal.
4. The Assessing Officer was wrong in understanding the agreement and the business commitments merely based on 30.06.2010 agreement and trying to assess the same income in two hands.
5. The Assessing Officer was wrong in reaching the conclusion that the income assessable in the hands of the appellant. The appellant rightly got the relief from the CIT(A).
The brief facts of the case are that the assessee is a private limited company engaged as dealers and servicing of CO No.17/Chny/2018 passenger cars, filed its return of income for the assessment year 2012-13 electronically on 21.03.2013 declaring loss of Rs.15,43,041/- under normal provisions and book profit ‘Nil’ under 115JB of the Act. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 16.08.2013. Finally assessment order was passed U/s.143(3) of the Act on 30.03.2015 wherein the Ld.AO made addition of Rs.1,00,31,950/- invoking the provisions of Section 40(a)(ia) of the Act, towards disallowance of sales commission expenses for non-deduction of tax at source.
The assessee company had paid share of profit due to M/s. Miracle Cars India Pvt. Ltd., amounting to Rs.1,00,31,950/- complying with the agreement entered between Mr. D. Sivakumar (authorized by the Board of Directors of the assessee company and also the chief promoter of the assessee company) and Mr.S. Arputharaj (Director of M/s. Miracle Cars India Pvt. Ltd.,), in lieu of the transfer of the Skoda dealership (franchisee business) and its assets. The Ld.AO opined that the transfer of profit by the assessee company to M/s. Miracle Cars India Pvt. Ltd., is actually payment of sales commission because in the books of Miracle Cars
CO No.17/Chny/2018 India Pvt. Ltd., the receipt was shown as such. Hence he was of the view that the assessee ought to have deducted ‘tax at source’ on the payment of sales commission to M/s. Miracle Cars India Pvt. Ltd. Further the Ld.AO opined that the agreement entered between Mr. D. Sivakumar and Mr. S. Arputharaj does not have any legal sanctity because the assessee company which is a distinct entity is not a party to the transaction. Therefore the Ld.AO held that as per provisions of Section 37 of the Act, the payment made by the assessee company cannot be treated as allowable revenue expenditure. Further he was of the view that even otherwise provisions of Section 40(a)(ia) of the Act would be applicable in the case of the assessee. Accordingly he added the amount of Rs.1,00,31,950/- to the income of the assessee.
On appeal, the Ld.CIT(A) following the decision of the Tribunal in the assessee’s own case on the identical issue for the assessment year 2011-12 deleted the addition made by the Ld.AO. The relevant portion of the order of the Ld.CIT(A) is reproduced herein below for reference:- “7.1 The appellant company is an authorized dealer of SKODA Auto India (P) Ltd., dealing in SKODA cars. The appellant company has entered into an agreement with Shri S.Arputharaj, Director of M/s Miracle cars India Pvt.Ltd., on 30.6.2010. The understanding as per the agreement was that, the CO No.17/Chny/2018 management of the company was under the supervision and support in the form of funds by MI5 Miracle cars India (P) Ltd., for running as well as keeping the adequate stock and the income earned out of this should be treated as their income i.e., income of M/s Miracle Cars India (P) Ltd., 7.2 Based on the MOU, the business was operated by M/s Miracle car (P) Ltd., and the entire profit derived from the sale of cars, services and spares sales is arrived as “share of profit paid" and transferred to M/s Miracle cars India Pvt.Ltd., for which Income-tax Return has also been filed by M/s Miracle cars India Pvt.Ltd., and tax have also been remitted by them for the said profit.
7.3 Further, during the course of appellate proceedings, the AR reiterated that, the transfer of dealership could not be taken place immediately as approval from SKODA was pending for certain reasons. In order to keep the license and dealership alive till the date of approval by the SKODA India Pvt.Ltd., as a time gap, an arrangement was made and as the business was run by M/s Miracle cars (P) Ltd., by investing their own funds in this franchisee business, the share of profit has to be given to them and naturally, the income has to be assessed under their hands. Further, the AR pointed out that, the expenses such as rent, employees cost, ESI, PF and all other expenses are met out by M/s Miracle Cars India Pvt.Ltd., and therefore, profits also belongs to them and further reiterated that, the concept of 'income by overriding title' is applied here.
7.4. In support of its argument, the appellant has relied on the following case law:-
(i) Dalmia Cement Ltd., vs.CIT (1999) 237 ITR 617 (SC)
(ii) JIT & pal x-rays (p) Ltd., U CIT (2004) 134 Taxman 62 (All) wherein it has been held that, the going concern purchased by the assesse and hence it is an integral part of the sale deed and the sale deed specifically mentions that the amount in question is charged on the net profits of the assesse company and CO No.17/Chny/2018 the assesse company had accepted this obligation as a conditions of its purchase of the going concern. Hence, it is not a case of mere application of income but it is a case of diversion of income by an overriding charge".
7.5. In addition, the AR brought to my notice that, in the preceding A.Y.2011- 12, in the appellant's own case for the same issue, the Hon'ble ITAT has passed the order in favour of the Appellant. The findings of the Hon'ble ITAT vide its Order is reproduced as under:-
"We have perused the orders and heard the rival contentions. It is not disputed by the Revenue that M/s SKODA Auto India Pvt.Ltd., had not approved the transfer of dealership from the assesse to M/s Miracle Cars India Pvt. Ltd. , It is also not disputed that there was a clause in the agreement which required approval of M/s SKODA Auto India Pvt.Ltd., for transfer of dealership from the assesse to m/s Miracle Cars India Pvt.Ltd., Even the part consideration received, was held by one Shri.D.Sivakumar, a director of the assesse and was never given to the assesse-company. Thus the agreement dated 30.06.2010, on which reliance has been placed by the Assessing Officer for fastening a liability on the assesse, was a conditional one which would become legally enforceable only if M/s SKODA Auto India Pvt.Ltd., gave approval for transfer of the dealership. Further, in the subsequent assessment year, the Assessing Officer himself noted that the agreement did not go through. Thus, in our opinion, the CIT(Appeals) was justified in taking the view that there was no slump sale and there was no occasion for making an addition of Rs.3,00,00,000/- as done by the A.O. We find no reason to interfere with the order of the CIT(Appeals). "
7.6 In view of the above facts and respectfully following the decision of the Hon'ble ITAT in the appellant's own case for the previous Asst.Year, the addition made on account of the disallowance of "Other Expenses" of Rs.1,00,31,950/- is hereby stands deleted.”
CO No.17/Chny/2018 6. The above facts are not disputed by the Revenue as well as the assessee. Further, since the issue has been already decided by the Tribunal in the preceding assessment year 2011-12 in the assessee’s own case on the same issue in favour of the assessee, which the Ld.CIT(A) has followed in his decision for the relevant assessment year, we do not find it necessary to interfere in his Order. Therefore we hereby uphold the order of the Ld.CIT(A). The cross objections raised by the assessee are in support of the order of the Ld.CIT(A) which we have upheld, hence the cross objections are allowed in favour of the assessee.
In the result the appeal of the Revenue is dismissed and the cross objections of the assessee are allowed in its favour.
Order pronounced on the 01st June, 2018 at Chennai.