DCIT, COIMBATORE vs. QUANTUM KNITS PRIVATE LIMITED, COIMBATORE

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The Revenue filed this appeal against the order of Commissioner

of Income Tax (Appeals)-1, Coimbatore in ITA No. 19/2015-16 dated

30.11.2015 for assessment year 2012-13.

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company carrying on the business of manufacture of textiles, handlooms and

powerlooms. The assessee is 100% subsidiary of KPR Mills Limited. During

the assessment year 2012-13, the assessee paid Rs 55,44,28,121,/- business

promotional expenses to M/s. KPR Mills Limited, the holding company without

deducting tax at source. Before the Assessing Officer, the assessee based on

the memorandum of agreement dated 24.06.2009, between the holding

company and its 100% subsidiary company submitted that it was to share the

revenue at the end of the financial year through a book entry on a fixed and

predetermined portion i.e., a said percentage of net revenue earned out of

the garment exported to the customers list supplied by KPR Mills Limited,

transferred to them after retaining 1% on turnover by Quantun Knits (P) Ltd.

for their operations and accordingly paid the impugned sum. Further, it

pleaded that the two contracting parties acted on principal to principal basis

and one did not provide any service to another. In the agreement, there was

no sharing of loss between the parties. Hence, the business promotional

expenses is not liable for TDS u/s. 194C, 194H, 194I or 194J or under any

other section under Chapter VII, governing deduction of tax at source . It

was further submitted that the amount received as business promotional

expenses by M/s. KPR Mills Limited was reflected in their accounts in the

computation of income tax statement and there is no revenue loss to the

department. Thus, the assessee argued that the business promotional

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expenses does not come under the ambit of tax. After considering the

submissions of the assessee and analysing the facts, the AO observed that

the agreement filed by the assessee details the bundle of service like rent,

royalty, commission has been complied with by M/s. KPR Mills Limited for

which they have raised payments in the name of business promotional

expenses and held that non-deduction of TDS on this payment is hit directly

by the provisions of section 40(a)(ia) and hence disallowed. Aggrieved, the

assessee filed an appeal before the CIT(A).

Mills Limited has accounted the entire payments at Rs. 54,40,85,961/- in their

books of accounts under the head Miscellaneous receipts and have paid the

tax on the same. Therefore, the assessee requested that it may be given a

benefit of the Supreme Court decision in the case of M/s. Hindustan Coca Cola

Beverages (P) Ltd vs CIT[2007] 293 ITC 226(SC) as well as on the

subsequent amendments in the Financial Act, 2012. It submitted that these

issues were raised before the Assessing Officer during the course of

assessment also. The CIT(A) allowed the assessee’s appeal.

“1) The order of the learned CIT(A)-I is against the law and facts of the case. 2) The learned CIT(A)-I, Coimbatore has erred in holding that since the recipient has admitted the sum received as income and paid taxes there on

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then the deduction (in this case the assessee) is absolved from deducting tax at source which is not the provision of law and against the legislative intent. 3) The learned CIT(A)- I, Coimbatore should have taken note of the fact that the assessee liable to deduct tax at source in respect of the payments made as business promotion expenses and having failed to do so, the expenditure was liable to be disallowed u/s 40(a)(ia). The decision in the case of M/s. Hindustan Coco Cola Beverages does not squarely apply to the facts and law of the case and can be distinguished on facts and law. 4) The learned CIT(A)-I ought to have considered the fact that transaction is between related parties. Moreover, this is not the first year or first instance, where assessee is violating provision of section 40(a)(ia). 5) The learned CIT(A)-I, Coimbatore should have taken note of the fact that if the contention of the assessee that the taxes has already been paid by M/s. KPR Mills Ltd., on the sum paid by the assessee is accepted, the provisions of TDS will be redundant which is not the intention of the legislature and law. The Board Circular No.275/201/95- IT dated 29.01.1997 quoted specifically pertains to the provisions of section 201(IA) and has no bearing on the larger question whether tax is liable to be deducted or not. 6) The learned CIT(A) failed to consider the jurisdictional High Court's decision in the case of Tube Investments of India Ltd vs. ACIT, TDS Circle-Il cited in [2009] 185 Taxman 438 (Mad) wherein it was held that the decision rendered by the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd was in the light of sections 201(1) and 201(IA) and cannot be applied to a situation where section 40(a)(ia) gets attracted which stands entirely on a different set of circumstances. 7) For these and other grounds that may be adduced at the time of hearing, the order of the learned CIT(A) may be cancelled and that of Assessing Officer be restored.”

lines of the grounds of appeal. Further, he supported the order of the

Assessing Officer based on the Delhi High Court decision in the case of CIT vs.

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ITC Limited [2017] 83 Taxman.com 167 (Delhi). Per contra, the AR relied on

this tribunal decision in the assessee’s own case rendered for assessment

year 2010-11 in ITA No. 2164/Mds/2014 dated 21.06.2017

The relevant portion of the CIT(A) order is extracted as under:

“11. On a perusal of the return of income filed by KPR Mills it is noticed that the assessee has accounted the entire amount under the head miscellaneous receipts totalling Rs.54,40,85,961/- being the amount received from M/s. Quantum Knits. Therefore relying on the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. Vs. CIT and subsequent decision of the ITAT Chennai in the case of M/s. Foxconn India Developers (P) Ltd. Vs. ITO TDS and also the decision of ITAT Panaji Bench in the case of Shri Chandrashekar Shivalingappa Vs. The CIT in ITA 33/PNJ/2013, ITAT B Bench Bangalore in the case of DCIT Vs. Shri Ananda Marakala in ITA No. 1584/Bang/2012, ITAT Pune Bench B, Pune in the case of ITO vs Gaurimal Mahajan & Sons in ITA No. 1852/PN/2012, ITAT Hyderabad Bench A Hyderabad in the case of Plr Projects Vs. Department of Income Tax in ITA No. 1079/Hyd/2013 the assessee is entitled to relief. It is also to be noted that Finance Act 2012 has made an amendment to Section 201 (1) to the effect that the deductee has discharged the tax liability attributable to such receipts and has filed the return of income the deductor need not be held to be an assessee in default despite failure to deduct tax at source on such payments. In this present case it is observed that deductee has included the payment in its total income and has also filed the return of income. In effect the Department has not suffered any revenue loss and in the circumstances the amendment though procedural in nature, made effective from a subsequent date should also be taken to be applicable to the year under consideration. Therefore the appeal of the assessee is ALLOWED.”

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business promotional expenses to M/s. KPR Mills Ltd., the holding company of

which, the assessee is a 100% subsidiary. M/s. KPR Mills Ltd. has included

the payment in its total income and has also filed the return of income and

they have paid the taxes on the same, which is not in dispute. The only

dispute before us is whether the second proviso to section 40(a)(ia) takes

effect from 01.04.2013 is applicable to the assessee or not ? The Counsel for

the assessee has placed reliance and submitted that this issue is squarely

covered in assessee’s favour by this tribunal decision, supra.

vs ACIT in ITA Nos. 20 & 231/Mds/2015 dated 21.06.2016, this tribunal in the

assessee’s own case in ITA No. 2167/Mds/2014 dated 21.06.2014, for

assessment year 2010-11 held as under:

“8. The ld. DR could not controvert the above findings of the Coordinate Benches of the Tribunal in the case of Star Investments Pvt. Ltd., wherein the decision of Agra Benches of the Tribunal in the case of Rajeev Kumar Agarwal v. Addl. CIT (supra) has been followed, which was affirmed by the Delhi Benches of the Tribunal in the case of Ansal Landmark Township Pvt. Ltd. v. Addl. CIT (supra), which was subsequently confirmed by the Hon’ble Delhi High Court in the case of CIT v. Ansal Landmark Township Pvt. Ltd. 377 ITR 635 (Del) and the same was not reverted by the High Court. Thus, respectfully following the decision of the Coordinate Benches of the Tribunal in the case of Star Investments Pvt. Ltd. (supra) and Ansal Landmark Township Pvt. Ltd. 377 ITR 635 (Del), the ground raised by the Revenue is dismissed.”

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Since, there is no change in the facts and in law, following the co-ordinate

bench decision in the assessee’s case, supra, the Revenue’s appeal is

dismissed.

Order pronounced on Wednesday, the 10th day of January, 2018 at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन) (एस जयरामन) (N.R.S. GANESAN) (S. JAYARAMAN) !या�यक सद"य/Judicial Member लेखा सद"य/Accountant Member

चे�नई/Chennai, 0दनांक/Dated: 10th January, 2018 JPV आदेश क& )�त1ल2प अ3े2षत/Copy to: 1. अपीलाथ%/Appellant 2. )*यथ%/Respondent 3. आयकर आयु4त (अपील)/CIT(A) 4. आयकर आयु4त/CIT 5. 2वभागीय )�त�न�ध/DR 6. गाड7 फाईल/GF