ACIT, MADURAI vs. THE METAL POWDER COMPANY LTD., MADURAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeal filed by the Department is directed against order

the Commissioner of Income-tax (Appeals)-I, Madurai in ITA

No.0088/12-13, dated 03.02.2014 for the assessment year 2010-2011 passed u/s.143(3) and 250 of the Income Tax Act, 1961 (herein after

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referred to as ‘the Act’).

Commissioner of Income Tax (Appeals) erred in deleting the addition

of deduction u/s. 80IB of the Act relying on the judicial decisions. (ii)

The Commissioner of Income Tax (Appeals) erred in deleting the

disallowance of commission paid to foreign agent without deduction of

tax u/s.195 of the Act.

of manufacture and sale of Metallic powders and filed Return of

income on 12.10.2010 with total income of �20,26,75,167/- and return

was processed u/s.143(1) and granted refund. Subsequently, the case

was selected for scrutiny under CASS and notice u/s.143(2) of the Act

was issued. In compliance to notice, the ld. Authorised Representative

of the assessee appeared from time to time and furnished information.

The ld. Assessing Officer found that assessee has claimed deduction

u/s.80IB of the Act were the assessee is having two units (i)

Aluminum Alloy Ingot Plant (ii) Aluminum Paste Unit VI and while

claiming deduction u/s.80IB of the Act the assessee has not set off

loss of Aluminum alloy Ingot plant and claimed deduction on positive

income but the ld. Assessing Officer found that as per the earlier order

of assessee’s own case for assessment year 2006-07, the aggregate of

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two units has to be considered for claiming deduction u/s.80IB of the

Act and relied on the Commissioner of Income Tax (Appeals) order,

and made disallowance of �1,10,37,553/-. The Assessing Officer

found that the company had paid foreign agency commission in foreign

currency to foreign agent without deduction of tax on �47,36,182/-.

The ld. Authorised Representative explained that commission was paid

for works of foreign agent and do not have any establishment in India

and hence are not liable to be taxed in India. The ld. Assessing Officer

found that the CBDT circulars are withdrawn and as contract services

rendered by the overseas agent comes under the purview of taxability.

The ld. Assessing Officer relied on the Authority for Advance Ruling in

the case of M/s. SKF Boilers and Driers Pvt. Ltd (AAR No.983-984 of

2012) and elaborated the findings in order relying on the provisions

applicable u/sec. 195 of the Act and disallowed �47,36,182/- for non

deduction of TDS u/s.40(a)(i) of the Act. The ld. Assessing Officer

with above additions and other disallowances assessed total income

�25,14,99,930/-. Aggrieved by the order, the assessee filed an appeal

before the Commissioner of Income Tax (Appeals).

two disputed issues that the adjustment of loss of one unit against

profit of another unit by ld. AO without following earlier year’s

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assessment order 2007-08 to 2009-2010 were profit of unit alone is

considered for 80IB deduction without any adjustment. The ld.

Commissioner of Income Tax (Appeals) considered the submissions

and findings of the Assessing Officer and deleted the addition by

following the order of the Tribunal in assessee’s own case as observed

in para 5.2 at page 5 as under:-

ITAT in its order in ITA NO.782 to 787/Mds/2012 & ITAT 869 to 874/Mds/2012 dated 21.02.2013 has allowed the issue in favour of the assessee with the following remarks: ’In later decision in the case of CIT Vs. MEPCO Industries 294 ITR 121 it was held that the deduction u/s.80IA and 801B could be worked out independently without effecting any inter se adjustment of loss and profit between various units.

If an assessee had different units resulting in positive gross total in view of the decisions of Hon'ble Jurisdiction High Court in the case of CIT Vs. Macmillan India Ltd. (295 ITR 67), CIT Vs. Rathore Brothers (254 ITR 656), CIT Vs. Suresh B. Mehta (291 ITR 462) and CIT Vs. M. Gani And Co. (301 ITR 381), each of the unit had to be separately considered for working out deduction u/s.80IA or 8018 or 80HHC of the Act, one separate account were being mentioned and there was no interlacing and interdependence. In the given case before us, assessee had positive gross total income. Therefore, each undertaking had to be considered separately for working out deduction u/s.80IA of the Act, since, the gross total income was positive. We are of the opinion that the CIT(A) was justified in giving such directions.

5.3 Thus the issue is squarely covered by the above order of Hon'ble ITAT in Appellants own case for earlier years which is in its favour. The addition is deleted’’.

Following the above decisions, the Commissioner of Income Tax

(Appeals) has deleted the addition. Aggrieved by the Commissioner of

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Income Tax (Appeals) order, the Revenue assailed an appeal before

the Tribunal.

argued that the ld. Commissioner of Income Tax (Appeals) erred in

deleting the addition without considering the facts and the decision of

Apex Court. The gross total income shall be arrived after adjustment of

loss of other division against profit derived from industrial undertaking

and prayed for allowing the appeal .

in assessee’s own case, the Tribunal has allowed the deductions in ITA

Nos.782, 783 and others for the assessment years 2002-03, 2003-04

wherein referred at page 4 to 7 is as under:-

‘’We have perused the orders and heard the rival submissions. For all the impugned years, what we note specifically from the orders of ld. CIT(Appeals) is that gross total income of the assessee was positive. Assessee had no carried forward loss of earlier years as well. That gross total income for all the impugned assessment years was positive, was not disputed by the learned D.R. Further, assessee had returned positive total income for all the impugned assessment years, and therefore, by necessary implication its gross total income, before the deductions claimed under Chapter VIA, whatever be that amount, would have only been positive. So, the only question that remains is, when the gross total income is positive, a deduction under Sections 80-IA and 80-IB can be worked out independently without setting off losses of units on which such deduction was not being claimed. In our opinion, this question stands already answered by Hon'ble jurisdictional High Court in their decision in the case of Chamundi Textiles (Silk Mills) Ltd. v. CIT (341 ITR 488). There the question was regarding claim of deduction under Section 80HHC and whether such deduction

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could be allowed without considering the results of a unit, which was not having any profits. It was held by their Lordships that by virtue of the decision of Hon'ble Apex Court in the case of IPCA Laboratories Ltd. v. CIT (266 ITR 521), undisputedly only an assessee having positive profits could claim such a deduction. Their Lordship also held that for arriving at such profit, income from various units had to be calculated and if one of the units was running at a loss, gross total income had to be arrived considering such loss also. Ultimately, if the gross total income was a loss, claim for deduction was to be rejected. Sections 80HHC or 80-IA or 80-IB for that matter, are all controlled by Section 80AB of the Act. “Gross total income” means gross total income computed as per the provisions of the Act. This was clearly reiterated by Hon'ble Apex Court in the case of Synco Industries Ltd. (supra). Hon'ble Apex Court held that gross total income had to be arrived at after making deductions as per appropriate computation provisions, including income under Sections 60 to 64, adjustment of inter se losses and after setting off brought forward losses and unabsorbed depreciation. Only if resultant gross total income was positive, an assessee was entitled for deduction under Chapter VIA of the Act. However, where assessee is having more than one unit, where one unit is eligible for deduction and other unit or units are not eligible for deduction and if the gross total income is positive, despite the loss in one of such units, decisions of Hon'ble Apex Court in the case of IPCA Laboratories Ltd. (supra) and Synco Industries Ltd. (supra) would have not much applicability. In such cases, where an assessee is carrying on various activities, even if centralized accounts are maintained, so long as interlacing, interconnectivity or interdependence of various units was not there, various activities have to be treated as separate and distinct, as held by Hon'ble Apex Court in the case of Water Fall Estates Ltd. v. CIT (219 ITR 563). Hon'ble Apex Court in the case of L.M. Chhabda & Sons. v. CIT (65 ITR 638) has also held that where an assessee carried on business ventures at different places, there was no general principle that they should all be considered as part of single business. Thus, if an assessee had different units resulting in positive gross total income, in view of decisions of Hon'ble jurisdictional High Court in the case of CIT v. Macmillan India Ltd. (295 ITR 67), CIT v. Rathore Brothers (254 ITR 656), CIT vs. Suresh B. Mehta (291 ITR 462) and CIT v. M. Gani And Co. (301 ITR 381), each of the unit had to be separately considered for working out deduction under Section 80-IA or 80-IB or 80HHC of the Act, once separate accounts were being maintained and there was no interlacing and interdependence. In the given case before us, assessee had positive gross total income. Therefore, each undertaking had to be considered separately for working out deduction under Section 80-IA of the Act, since the gross total income was positive. We are of the opinion that CIT(Appeals) was justified in giving such directions

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and prayed for dismissal of Revenue appeal.

record, judicial decisions cited. We, respectfully, following the decision

of the Tribunal in ITA No. 782 & 783/Mds/2012, dated 21.02.2013 in

assessee’s own case, uphold the order of Commissioner of Income Tax

(Appeals) and dismiss the ground of the Revenue.

Tax (Appeals) heard the submissions and considered the findings and

also made elaborate discussions of the advance ruling and CBDT

circulars and the submissions at para 6.2 of the order and statement at

para 6.3 as under:-

‘’Appellant filed the details of the evidence for the commission paid in the form of the invoices raised by the Appellant, where the word commission is clearly mentioned including details of the export order to which the commission relates to. also filed during the assessment proceedings. The address of all the persons in the invoice is outside India, have no business presence in India and the payments are made in foreign exchange through banking channels and certificates are submitted to the Banks for paying the foreign exchange. The details of the commission are as under. Month Name Address USD Amount (Rs) June, 09 Meditrade Lebanaon P.O.Box 90-514, 3071.00 148,421.43 Jdeidet – EI- Mtn, Lebanon July, 09 Arun K. Chotopodyay 20704.50 1,007,895.06 4206, Harpers Cross, Lang horn pa 19047, USA Aug, 09 Quimialmel, S.A. Spain CL san Roque, 1600.00 77,984.00

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15 Castelloon De La Plana Spain Aug, 09 570.00 27,898.50 Bowin Success Company, Flat C 4/F, 946 Kawloon Canton Road, Kawloon, Hongkong Aug, 09 42113.83 2,052,627.59 Percept General Trading P.O.Box 26475 Co LIC Sharagh Sharagh UAE Sep. 09 Aurn K. Chotopadyay 7721.76 380,050.59 4206, Harpers Cross, Lang horn pa 19047, USA Dec. 09 Quimialmel, S.A. Spain CL san Roque, 1,600.00 75,008.00 15 Castelloon De La Plana Spain Dec. 09 16496.80 775,349.00 Percept General Trading P.O.Box 26475 Co LIC Sharagh Sharagh UAE Dec. 09 804.00 37,691.52 Louis T. Leonaowens, 177/1, But 10th Thailand Ltd building, floor, Surawongse Road, Bangrak, Bankok, Thailand, Dec. 09 Calus JD Souza Kuwait. 3301.50 153,255,63.00 P.O.Box No.9805, Salmia 22099, Kuwait. Total 4,736,181,92/-

The ld. Commissioner of Income Tax (Appeals) considered the

Supreme Court decision and Jurisdictional High Court decision and

relied on the Co-ordinate Bench Tribunal decision of ITO vs. Faizan

Shoes (P) Ltd (2013) 34 taxmann.com 79 and deleted the addition of

the Assessing Officer.

argued the grounds that the ld. Commissioner of Income Tax

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(Appeals) erred in deleting the addition without considering the facts

and provisions of Sec. 195 and applicability of Sec. 210(a)(i) and CBDT

circular and relied on lower authorities order and prayed for set aside

the order of Commissioner of Income Tax (Appeals).

argued and relied on order of the Commissioner of Income Tax

(Appeals) and prayed for dismissal of Revenue appeal.

record and judicial decisions. We respectfully following the decision of

Co-ordinate Bench in the case of Faizan Shoes (P) Ltd (2013) 34

taxmann.com 79 wherein held as under:-

‘’Assessee company was engaged in business of manufacture and export of shoe uppers and leather shoes - It paid certain commission to non-residents for procuring export orders - Since assessee did not deduct tax at source while making said payments, Assessing Officer disallowed same under section 40(a)(i) - It was noted from records that non- residents were only procuring orders for assessee and following up payments and apart from that no other services were being rendered - Whether since non- residents were not providing any technical services to assessee, payments made to them did not fall under category of royalty or fee for technical services under section 9(1 )(vi) - Held, yes - Whether even otherwise, since commission paid to non-residents was not taxable in India, assessee was not required to deduct tax at source while making said payments - Held, yes - Whether in view of above, impugned disallowance was to be deleted - Held, yes’’

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We upheld the order of the Commissioner of Income Tax (Appeals) and dismiss the Revenue appeal.

Order pronounced on Thursday, the 31st day of March, 2016 at Chennai.

Sd/- Sd/- (ए. मोहन अलंकामणी) (जी. पवन कुमार) (A. MOHAN ALANKAMONY) (G. PAVAN KUMAR) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 31st March, 2016. KV

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF