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Income Tax Appellate Tribunal, “ B” BENCH, KOLKATA
Before: Shri M. Balaganesh
SHRI M.BALAGANESH, AM
These cross appeals of the assessee as well as the revenue arise out of the order of the Learned CIT(A)-XII, Kol. in Appeal No. 460/CIT(A)-XII/Addl.CIT, R-12/10-11 dated 30-03-2011 for the Asst Year 2007-08 against the order of assessment framed by the Learned AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Both the appeals are taken up together and disposed off by this common order for the sake of convenience.
ITA Nos. 806 & 872/Kol/2011-B-AM 1 M/s.Linde India Limited
The first issue to be decided in both the appeals of the assessee as well as the revenue is as to whether the provisions of section 40(a)(ia) of the Act could be invoked towards the payment of Rs.72,89,71,972/- made on account of offshore supply of equipments. ITA No. 806/Kol/2011 for A.Y 2007-08 (by the assessee)
In this appeal, the assessee has raised the following ground:- “That on the facts & in the circumstances of the case, the CIT(Appeals) erred in not deciding the issue of applicability of TDS provisions on payment of Rs.72,89,71,972/- being made on account of offshore supply of equipments.”
ITA No. 872/Kol/2011 for A.Y 2007-08 (by the revenue)
In this appeal, the revenue has raised the following ground:- “The ld. CIT(A) erred in deleting the disallowance of Rs.72,89,71,972/- u/s. 40(a)(ia) without appreciating the facts and circumstances of the case. “
The brief facts of this issue are that the assessee is a company engaged, inter-alia, in the business of manufacture and sale of various industrial and mechanical gases (viz. oxygen, nitrogen, dissolved acetylene etc) cryogenic and non-cryogenic plants and vessels. The ld. AO observed that in respect of advances lying on 31-03-2007 in respect of import of capital goods the tax was not deducted at source [TDS] in terms of provisions of section 40(a(ia) of the Act for which show cause notice was issued to the assessee. In response to the show cause notice the assessee replied that this amount represents advances made for import of capital goods, which is outstanding as on 31-03-2007. Such advances were made towards purchase/import of capital goods on FOB basis at foreign sea ports, leading to the transfer of title to the goods outside India. Hence, there is no income being chargeable to income-tax in India. Accordingly, the provisions of section 195 of the Act are not attracted. It was also stated that such advances to suppliers have not been charged to the P & L account for the year under consideration as per the method of
ITA Nos. 806 & 872/Kol/2011-B-AM 2 M/s.Linde India Limited
accounting followed by the assessee. In view of the aforesaid facts, it was argued that question of advances falling under the ambit of disallowance/addition u/s. 40(a)(ia) of the Act does not arise. Further, it was submitted that in connection with the transaction in India, the assessee stated that tax was duly deducted and deposited as applicable in accordance with the provisions under Chapter XVIIB of the Act. The ld. AO did not agree with the contentions of the assessee and concluded that the transaction is a composite technical contract and the payment made thereon is a lump-sum consideration. The ld.AO also observed that there is close nexus, link, relationship and commonness interest between M/s. BOC India Ltd, the assessee herein and Linde AG, a German company. According to the ld.AO, the technical contract is covered u/s. 9(1)(vii) of the Act. Section 195 of the Act is applicable on entire amount paid to Linde AG, a German company and therefore, withholding tax should have been deducted u/s. 195 of the Act. In view of this, the ld.AO treated the entire payment of Rs. 4,45,03,392/- and advance of Rs.42,10,04,615/- and Rs.81,86,94,472/- paid as advance during the year to Linde AG for execution of technical services and disallowed the same u/s. 40(a)(ia) of the Act. The total income was determined by the ld.AO at Rs.227,71,50,506/- after making other additions. Later, an order u/s. 143(3) r.w.s 154 was passed by the ld.AO on 27-01-2011 determining the taxable income at Rs.1,72,19,20,000/-. In this order, the disallowance made u/s. 40(a)(ia) on account of import of goods was restricted to Rs.72,89,71,972/-.
Before the ld. CIT(A), it was contended by the assessee that no tax was required to be deducted on this transaction, as equipments were purchased outside India and the payment was also made outside India. It was argued that such sum is not chargeable to tax in India and hence there is no requirement withholding the tax in terms of section 195 of the Act. It was explained before the ld.AO that such sum was not charged to the P & L account for the year under consideration. The assessee has also not claimed any depreciation in computing the taxable income for the year under appeal. Based on this submission, the ld.CIT(A) deleted the impugned addition/disallowance made u/s. 40(a)(ia) of the Act by the ld.AO. Aggrieved, the revenue is in appeal before us. The assessee is
ITA Nos. 806 & 872/Kol/2011-B-AM 3 M/s.Linde India Limited
also in appeal before us on the non-applicability of TDS provisions for payments made on account of offshore supply of equipments.
We have heard the rival submissions and perused the material available on record. We find that the ld.AO was not justified in invoking the provisions of section 40(a)(ia) of the Act to make disallowance of Rs.72,89,71,972/-, because it is not in dispute that the payment of the aforesaid amount has been made by the assessee company as advance to a non-resident company named as Linde AG, a resident of Germany. We hold that the provisions of section 40(a)(ia) of the Act are applicable only in the cases where any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services has been paid or payable to a resident. In the case of assessee company, the payments were made to a non resident German company, the fact which is undisputed on record. Hence, the provisions of section 40(a)(ia) cannot be invoked in this case. We find that if at all, the aforesaid amount of payment made to M/s. Linde AG is disallowable, the disallowance could be made only u/s. 40(a)(i) of the Act. We find that as per the provisions of section 40(a)(i) of the Act any interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India; or in India to a non-resident, not being a company or to a foreign company, 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 during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200, such an expenditure shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession.” We hold that even in the case of disallowance40(a) of the Act, it is necessary that the payment should be of any interest, royalty, fees for technical services and other sum which is chargeable under the Act and payable outside India or in India to a non resident. We hold that in order to invoke the provisions of section 40(a), the primary condition is that such sum paid should be chargeable under the Act, i.e it should have been debited to the Profit & Loss A/c and claimed as deduction. If an assessee has paid any sum of the nature mentioned above outside India or in India to a resident, but has not been debited to the Profit & Loss A/c
ITA Nos. 806 & 872/Kol/2011-B-AM 4 M/s.Linde India Limited
and has not been claimed as deduction in computing the income chargeable under the head “profits and gains of business or profession, the disallowance cannot be made. On perusal of letter dated 1/12/2010 and balance sheet as on 31/3/2007, we find that the assessee has shown capital work- in- progress as on 31/3/2007 amounting to Rs. 130,31,87,000/-. This includes capital advance of Rs. 84,40,14,000. We also find that the assessee during the course of assessment proceedings had filed complete party wise details of capital work-in- progress of Rs.130,31,87,000/-. The payment of Rs.84,40,14,000/-, which is the part of capital advance and appearing in the capital work- in- progress includes a sum of Rs. 72,33,40,648/- made to M/s. Linde AG and besides there was payment of Rs.56,31,324/- to the said German company, which was appearing under the head “loans & advances”. Thus, we find that the total of aforesaid amounts come to Rs.72,89,71,972/- i.e (Rs.72,33,40,648 + Rs.56,31,324). These sums are part of capital work-in-progress and loans and advances and not charged to the Profit & Loss A/c and the assessee has not claimed the same as deduction while computing the income under the head “profits and gains of business or profession”. Moreover, the subject mentioned payments are not chargeable to tax in India in terms of section 195 of the Act. Hence, no disallowance could be made u/s. 40(a)(i)/40(a)(ia) of the Act. Hence, this ground of assessee’s appeal is allowed and that of the revenue’s appeal is dismissed.
The second issue to be decided in the appeal of the assessee is as to whether the ld. CIT(A) is correct in directing the ld.AO to adopt the valuation done by the DVO(District Valuation Officer) for the purpose of computing capital gains in the facts and circumstances of the case.
The brief facts of this issue are that the assessee sold measuring 13.90 acres of land structure thereon to M/s. Emmar MGF Land Pvt. Ltd on 21st June 2006 in respect of property situated at Old Door No.7A, New No.75, Vythianatha Mudali Street, Thondiarpet Village, Chennai for a sum of Rs. 25.05 crores and declared long term capital gains thereon. The ld.AO observed that the stamp duty valuation in respect of subject mentioned property was of Rs. 53.50 crores. The ld.AO issued a show cause notice to the
ITA Nos. 806 & 872/Kol/2011-B-AM 5 M/s.Linde India Limited
assessee as to why the stamp duty valued Rs.53.50 crores should not be substituted as sale consideration for the purpose of computing the capital gains. The ld.AO referred the valuation of the subject mentioned property in question to the DVO on 22-11-2010. Since time limit for completing the assessment expired on 30/12/2010 and in view of the fact that the ld.DVO did not submit his valuation report, the ld.AO proceeded to complete the assessment u/s. 143(3) on 30-12-2010 by adopting the stamp duty valuation u/s. 50C of the Act and re-computed the long term capital gains in respect of the subject mentioned property. The assessee preferred first appeal before the ld. CIT(A). During the course of appellate proceedings, the ld.DVO had submitted his report on 4-3-2011 valuing the subject mentioned property at Rs.27,13,27,000/-. The ld.CIT(A) after considering the various submissions of the assessee directed the ld.AO to adopt the value as given by the ld.DVO and re-compute the long-term capital gains accordingly. Aggrieved, the assessee is in appeal before us on the following grounds:- “2(a) That on the facts & in the circumstances of the case, the CIT (Appeals) erred in directing the Assessing Officer to compute long term capital gains arising from sale of property at Chennai on the basis of valuation report of the district valuation officer.
2(b) Without prejudice to ground no. 2(a) above, for that the appellant having challenged the constitutional validity of Section 50C of the Act as violative of Article 14, 265 and 300A of the Constitution of India, the purported order of assessment on the basis of the value of the land as determined under the Tamil Nadu Stamp Duty Act for determining the capital gains is illegal, invalid and without any authority of law.
2( c) Without prejudice to ground no. 2( a) & 2(b) above, the CIT(Appeals) erred in not appreciating that provisions of section 50C is not applicable on sale of building, being depreciable assets.
We have heard the rival submissions and perused the material available on record including the detailed paper book of the assessee filed before us. The facts as stated hereinabove remain undisputed and hence are not reiterated herein for the sake of brevity. We find that the ld.DVO had also adopted stamp duty rate @ Rs. 861 per sq.ft in respect of subject mentioned property. We also find from the paper book that the assessee submitted the registered valuer’s report, wherein the said valuer had adopted the
ITA Nos. 806 & 872/Kol/2011-B-AM 6 M/s.Linde India Limited
rate @ Rs.830/- per sq. ft for the valuation of land. In the said valuation report the rate per sq.ft prevailing in various streets are mentioned as below:-
Vaidyanathan Street - Rs 728/- per sq.ft Thiruvottriyur High Road (particular stretch) - Rs 983/- per sq.ft Elaya Mudali Street - Rs 537/- per sq.ft Senniamman Koil Street - Rs 861/- per sq.ft
We find that the Ld DVO observed that the subject mentioned property is nearer to Senniamman Koil Street. The ld.DVO adopted the guideline value rate of Senniamman Koil Street and added 15% for frontage on both side roads and arrived the rate per sq.ft as Rs. 990/- per sq.ft. We find that total land area conveyed in the registered sale deed was 6,05,804 sq.ft. The ld.DVO had adopted the net area available for sale of land at 4,54,353 sq.ft after deducting the area required for layout services and amenities @25% and then estimated the net area available for sale of land at Rs.44,98,09,470/- [ 454353x Rs.990 i.e. the rate of Rs.861/sq.ft being guidelines value + Rs.129/sq.ft 15% frontage on both sides]. Now, it is pertinent to reproduce the provisions section 50C of the Act at this juncture:- “Special provision for full value of consideration in certain cases. 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. (2) Without prejudice to the provisions of sub-section (1), where— (a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court,
ITA Nos. 806 & 872/Kol/2011-B-AM 7 M/s.Linde India Limited
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation 1.—For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.—For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty. (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.
11.1 From the above, it could be seen that even the provisions of section 50C contemplates the adoption of fair market value for the purpose of valuation of the property. We hold that once the determination of fair market value is under consideration all the relevant factors i.e. land area available for construction should be taken into account irrespective of the actual land area conveyed. Accordingly, we are in agreement with the area of land as adopted by the ld.DVO . However, we find that as per the valuation of property is concerned, it is not correct on the part of ld.DVO to add towards 15% frontage on both sides of the road in order to arrive at the total rate at Rs.990/- per sq.ft as ultimately the ld.DVO adopted the guideline value rate of Senniamman Koil Street at Rs.861/- per sq.ft. In view of the above, we hold that the land should be valued by adopting the rate at Rs.861/sq.ft for the area of 4,54,353 sq.ft. Accordingly, assessee gets a relief for the rate of Rs.129/sq.ft. The Ld. AO is directed to rework the capital gains by adopting Rs. 861/- per sq.ft being the guideline value in the same manner in which the Ld DVO had carried out the valuation. Ground nos.2(a) to 2( b) are allowed subject to the direction contained herein above.
ITA Nos. 806 & 872/Kol/2011-B-AM 8 M/s.Linde India Limited
11.2 In respect of valuation of building, the assessee has adopted Rs.1,34,02,000/- as sale consideration attributable to the building in the sale deed, we find from the ld.DVO’s report that the same valuation has been adopted for the building. We hold that no interference needs to be made with regard to the valuation of the building. Ground no. 2 ( c) of assessee’s appeal is dismissed.
Ground nos. 3 & 4 are general in nature and require no adjudication.
In the result, the appeal of the assessee is partly allowed and appeal of the revenue is dismissed as stated above.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 17-02- 2016
Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date:
Date 17 -02-2016
Copy of the order forwarded to:- 1.. The Appellant: M/s. Linde India Limited (formerly known as BOC India Limited) Oxygen House P-43 Taratala Road, Kol-88. 2 The Respondent- The Addl.CIT, Range-12/DCIT, Cir-12, Kolkata. 3 /The CIT, 4.The CIT(A)
DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar **PRADIP SPS
ITA Nos. 806 & 872/Kol/2011-B-AM 9 M/s.Linde India Limited