ITO,, TUTICORIN vs. STERLITE INDUSTRIES (INDIA) LIMITED,, TUTICORIN

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER

In this appeal filed by the Revenue, it has raised the

following grounds. ‘’1. The learned CIT (A) erred in facts and circumstances of the case. 2. The learned CIT (A) ought to have noticed that the decision of the Hon. Apex Court in the case of M/sVijay Ship Breaking Corporation is applicable only to Ship Builders Industries and not to the present case. In the case of Vijay ship breaking corporation, the interest payment against LC is on account of acquisition of the ship to be broken, which is a capital asset and the corresponding interest payment is of

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capital nature, whereas, in the present case assessee company has paid interest for procurement of copper ore from Australia and Chile, which is of revenue in nature. Hence the case of Vijay ship breaking corporation is not applicable to this case.

2.1 The learned CIT(A) failed to note the Explanation 2 to sec.10(15)(iv)(c) which runs as under:

"For the removal of doubts it is hereby declared that the usance interest payable outside India by an undertaking engaged in the business of ship breaking in respect of purchase of a ship from outside India shall be deemed to be the interest payable on a debt incurred in a foreign country in respect of purchase outside India."

The explanation conveys that usance interest is exempt from payment of Income tax if paid in respect of the ship breaking activity. This amendment came into force only after the judgment relied on.

3.The learned CIT(A) ought to have noticed that the interest on letter of credits is within the meaning of sec.2(28A) which reads:

"As per sec.2(28A) interest means interest payable in any manner In respect of any money borrowed or debt incurred (including a deposit claim or other similar right or obligation) and includes any service tax or other charge in respect of the monies borrowed or debt incurred or in respect of any credit facility which has not been utilized."

3.1 The learned CIT(A) failed to note that the assessee company had itself admitted the interest on letters of credit of Rs.14,91,09,252/- as a distinct item under interest and finance charges and not as purchase price or discounting charges.

3.2 The learned CIT (A) ought to have noticed that the assessee deductor itself vide letter dated 19-07-2005 worked out the tax liability as per section 195 of the Income-tax Act, 1961

"Circular NO.68 dated 17-11-1971 which states mistakes apparent from records where an assessee makes an application u/s.154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position of a mistake has occurred in any of the completed assessments in this case the application shall be actual upon provided the same has been filed within time and otherwise in order".

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5.1 The, learned CIT (A) ought to have noticed that in order to bring an application u/s.154 of the Income-tax Act, 1961 the mistake must be apparent from record. 5.2 The learned CIT(A) ought to have noticed that section 154 does not enable an order to be reversed by the revision or by review but permits only some error which is apparent on the fact of the record to be corrected. 5.3 The learned CIT (A) ought to have noticed the definition "A Decision on a debatable point of law is not a mistake apparent from record". 5.4 The learned CIT (A) ought to have noticed the definition of assessment which means "Assessment Orders passed u/s.143 (3); 144 and Reassessment u/s.143 (3) r/w section 147.

"Under section 201 a person is deemed to be an assessee in default if such person fails to deduct the tax. But an order u/s.201 is not an order of assessment within the meaning of section 153 because of an assessment under the Act and a liability to deduct tax both are different things. Thus actual assessment may take place after the liability to deduct has arisen and the period of limitation prescribed in section 153 for completion of assessment does not apply to the liability u/s.195 or section 201 of the Income-tax Act, 1961."

7.The learned CIT(A) ought to have noticed the case of B.V.K. Seshavataram vs CIT (1994) 210 ITR 633 (A), has held that subsequent decision of the Supreme Court can form basis of order of rectification. In the case of CED vs. V.G.Badmia (1990) 186 ITR 170 (Bombay) the Tribunal was held to be justified in rectifying the order so as to bring it in conformity with the Supreme Court decision". Both the decisions are squarely not applicable to the facts of this case since the above case law relates to Assessment and not relating to TDS u/s.201.’’

Facts apropos are that assessee a copper manufacturer and 2.

importer of copper ore from Australia and China was subject to an

inspection on 13.11.2003 for verifying its compliance with the

provisions of the Income-tax Act 1961 (in short ‘’the Act’’) on

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deduction of tax at source. Assessee was thereafter issued letter

dated 17.12.2003 calling for a break-up of various expenditure which

as per ld. Assessing Officer required deduction of tax at source. From

the reply filed by the assessee, it was noted by the ld. Assessing

Officer that assessee had failed to deduct tax on interest paid on

Letter of Credits (LCs). As per the assessee even if interest on LCs

were held liable for deduction of tax at source, it was the duty of the

banker who provided the LC facility to deduct such tax. Reliance was

placed by the assessee on the decision of Rajkot Bench of the

Tribunal in the case of Vijay Ship Breaking Corporation vs. DCIT

(2003) 86 ITD 497. Ld. Assessing Officer thereafter passed an order

on 23.03.2005 holding that interest paid on letter of credit could not

be considered as part of the purchase price and decision of the

Tribunal in the case of Vijay Ship Breaking Corporation (supra) stood

reversed by Hon’ble Gujarat High Court in 261 ITR 113. Accordingly,

he held that assessee had failed to deduct tax in respect of interest of

LCs paid to persons in Frankfurt and Singapore and a demand was

raised on the assessee.

Thereafter, on 30.03.2005 assessee requested for 3.

rectification of the demand of �1,49,10,925/- raised on it, based on

the following reasons:

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‘’1)The payment of interest on letters of credit includes payment to overseas branches of Indian Banks viz State Bank of India /Union Bank of India etc .As these banks are assessed in India as Resident the provisions of Sec 194A does not apply such payments 2)The payment of interest to certain foreign Banks has been made net of tax u/s 195A of the Income Tax Act,1961 and therefore such payments cannot be subject to TDS once again. 3). The applicability of the provision of DTAA and sec 90 of the IT ACT 1961 is to be considered by taking out country wise breakup of the figures of such payment to arrive at the exact quantum of interest liable for TDS and the rates as may be applicable" 4) Under LC arrangement where there is a credit period offered by the supplier, the rate to be changed would be higher than the contracted price owing to the risk of delayed payment. The parameters based on which the increased price is to be charged are also clearly defined in the contract. When such an arrangement is made the difference between the Invoice price and the initial contract price is taken as Interest on L.C. Hence here again the entire payment made to the supplier is on account of raw material cost and there is no element of interest involved’’.

Thereafter vide its letter dated 19.07.2005, assessee gave a breakup

of the interest paid on LCs. Based on this, on 20.07.2005 Tax

Deduction Officer revised the demand by applying TDS rate of 20% for

banks at Chile, 15% for banks at Switzerland and 10% for other

banks. Demand was brought down to �1,01,69,740/-. Interest of

�29,99,190/- u/s.201(1A) of the Act was also charged.

On 31.08.2009 assessee filed another application for 4.

rectification of the order dated 20.07.2005 citing judgment of Hon’ble

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Apex Court in the case of Vijay Ship Breaking Corporation vs. CIT 314

ITR 309. As per the assessee, Hon’ble Apex Court had held that

‘usuance interest’ partook the character of purchase price and

therefore there was no liability to deduct TDS when such interest was

paid. However, ld. Assessing Officer did not accept the rectification

application filed by the assessee. According to him, assessee was

trying to skirt its responsibility by interpreting interest on LCs as a non

taxable item. Further as per ld. Assessing Officer assessee itself had

worked out its liability to deduct tax u/s.195 of the Act, in its letter

dated 19.07.2005. Ld. Assessing Officer also noted that time limit

provided u/s.154(7) of the Act had expired and rectification application

u/s.154 of the Act could not be entertained. He thus rejected the

application filed by the assessee.

Aggrieved, Assessee moved in appeal before ld. 5.

Commissioner of Income Tax (Appeals). Ld. Commissioner of Income

Tax (Appeals) held that in so far as time limit was concerned the

original order passed on 23.03.2005 being subject to a revision on

20.07.2005 which was served on the assessee on 17.08.2005, petition

dated 31.08.2009 for rectification, filed on 03.09.2009 was well

within the time limit. In so far as liability of the assessee to deduct

TDS was concerned, ld. Commissioner of Income Tax (Appeals)

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observed that ld. Assessing Officer had himself relied on the judgment

of Hon’ble Gujarat High Court in the case of Vijay Ship Breaking

Corporation (supra) while fastening the liability on the assessee, and

once of the said decision was overturned by Apex Court, there was

every justification for the assessee to seek a rectification. As per ld.

Commissioner of Income Tax (Appeals) definition of interest

u/s.2(28A) of the Act was only on money borrowed or on debt

incurred. He thus held that ld. Assessing Officer was not justified in

not allowing the rectification application filed by the assessee. He

allowed the appeal of the assessee.

assailing the order of the ld. Commissioner of Income Tax (Appeals)

submitted that judgment of Apex Court in the case of Vijay Ship

Breaking Corporation (supra) was applicable only to ship building

industry and assessee was not in such industry. Further as per ld.

Departmental Representative Explanation 2 to Sec.10(15)(iv)(c)

clearly indicated that exemption from payment of Income Tax for

usance interest was only available for business of ship breaking. As

per ld. Departmental Representative there was no mistake apparent

on record which could justify a rectification.

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Per contra, ld. Authorised Representative submitted that ld. 7.

Assessing Officer having relied on the judgment of Hon’ble Gujarat

High Court in the case of Vijay Ship Breaking Corporation (supra) was

bound to rectify the order when the said judgment was reversed by

the Hon’ble Apex Court.

We have considered the rival contentions and perused the 8.

orders of the authorities below. It is true that judgment of Hon’ble

Gujarat High Court in the case of Vijay Ship Breaking Corporation

(supra) stood reversed by Hon’ble Apex Court in 314 ITR 309.

Interpretation of law by Hon’ble Apex Court relates back to the date of

enactment of the related provision itself and there can be no quarrel

on the point that a rectification can be done for giving effect to a

judgment of Hon’ble Apex Court. The basis on which assessee sought

rectification is a letter dated 31.08.2009 which reads as under:-

Date. 31st August, 2009 To The Income tax officer TDS ward Office of the Income tax office - TDS 6-T, North Cotton road Tuticorin - 628 001

Sir, Ref: TAN: MRIS 01730 B Assessment year 2003-04 Your order date 20.07.2005 served on 17.08.2005.

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Kindly refer to the above. As per your order cited under reference you have demanded and collected a sum of Rs.1,22,75,711/ - by way of TDS dues and a further sum of Rs.29,99,190/ - as interest for belated payment of TDS dues respectively. We did not deduct and remit tax on the payment of usance interest on the strength of the decision of IT AT Rajkot bench in VIJAY SHIP BREAKING CORPN V DCIT (776 TTJ 169) relied upon by us while you fastened the liability on us by contending that the said decision relied on by us was reversed by the Honourable Gujarat High court reported in 261 ITR 113. Therefore we effected the payments on account of the same as detailed below:-

TDS

Date Amount

07.10.2002 13,547 04.12.2002 14,69,496 30.03.2005 5,00,000 22.07.2005 1,01,69,740 Total Demand as per 1,21,52,883 order dated 20.07.05

Interest u/.s201(1A)

Date Amount

10.09.2005 29,99,190 Total demand as per order dated 29,99,190 11.08.05

Now we find that the said decision of the Honourable Gujarat high court relied by you and on the strength of which you passed the order going rise to Durand of WHT & Interest, has been reversed by the Honourable Supreme Court in Vijay Ship Breaking Corporation &others Vs. CIT ( and other appeals) As reported in (2009) 314 ITR 309 (SC). In this connection, we send enclosed a Xerox copy each of the following and request you to rectify the orders and refund the tax and interest demanded and collected from us. i) Order dt 23.03.05 by TDS ITO, Tuticorin ii) Order dt 20.07.05 by TDS ITO, Tuticorin iii) Order dt 11.08.05 by TDS ITO, Tuticorin iv) Copy of decision in (2009) 314 ITR 309 (SC)

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v). Copy of letter of authority in favour of our tax representative

Kindly rectify the order and grant refund of tax and interest paid by us along with interest at your earliest convenience.

Thank you.

Yours faithfully, For Sterlite Industries (India) LTD Sd/- A.Satish G.M (Finance & Accounts).

The question before us, is whether the assessee had given sufficient

details in the above rectification petition, which could facilitate a

rectification. Though assessee states that it had remitted the deducted

tax on the dates mentioned therein, there is nothing whatsoever to

show to the nature and quantum of the amounts on which such

deduction were effected. Essential details of the LCs opened,

payments interest thereon were not available. When a rectification

petition itself is vague, assessee cannot say that there was a mistake

apparent on the face of the record which called for rectification. By

virtue of judgment of Apex Court in the case of T.S. Balaram, ITO vs.

Volkart Brothers and others (1971) 82 ITR 50, what can be rectified

u/s.154 of the Act is only a glaring mistake apparent on the record.

Apart from this, we also find that applicability of the judgment of

Hon’ble Apex Court in the case of Vijay Ship Breaking Corporation

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(supra) to assessees other than those engaged in ship breaking

business, is a debatable one. Especially so, when we consider

Explanation (2) to Sec. 10(15)(iv)(c) of the Act. We are therefore of

the opinion that rectification sought by the assessee, which was

allowed by the ld. CIT(A) resulted, in a review and Section 154 of the

Act does not give any room for such review. We have no hesitation to

set aside the order of the ld. Commissioner of Income Tax (Appeals)

and re-instate the order of the ld. Assessing Officer.

In the result, appeal of the Revenue stands allowed. 9.

Order pronounced on Tuesday, the 28th day of February, 2017, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन)) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated: 28th February, 2017 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF