DCIT, CHENNAI vs. ADDISON & COMPANY LTD., CHENNAI

आदेश / O R D E R

PER S.S.GODARA, JUDICIAL MEMBER

This Revenue’s appeal for assessment year 2009-10, is directed against order of the Commissioner of Income-tax (Appeals)- VI Chennai dated 17.1.2013, passed in Appeal No.168/12-13, deleting disallowance u/s 40(a)(i) of ` 58,38,178/- and development

I.T.A.No.1744/13 :- 2 -: charges on lease land of ` 9,81,191/-, made in a ‘regular’ assessment framed on 20.12.2011, in proceedings under section 143(3) of the Income-tax Act, 1961 (in short the ‘Act’).

The assessee-company manufactures and trades in metal 2. cutting tools. It had filed its return on 29.9.2009 admitting income of ` 5,14,73,992/-. The same was ‘summarily’ processed. Thereafter, the Assessing Officer inter alia noticed the assessee’s overseas commission payments amounting to ` 68,38,178/- without deducting TDS and also development charges incurred on lease land amounting to ` 9,81,191/-. He disallowed both these outgoes for want of TDS deduction and held the latter one to be of capital expenditure.

The CIT(A) has deleted both these disallowances. 3.

Therefore, the Revenue is in appeal.

Now we come to Revenue’s first ground. The assessee had 4. paid export commission to its overseas agents based at USA, UK, Italy, Germany and Bangkok totalling to ` 68,38,178/- without deducting any TDS. It relied on the Board’s circular No.786 dated 7.2.2000. It was pleaded that the said agents had not rendered any services in India so as to invoke TDS provision. The Assessing Officer observed in I.T.A.No.1744/13 :- 3 -: assessment order that these export commission payments had been made in lieu of availing technical services. He relied on Finance Act, 2010 substituting Explanation u/s 9 with retrospective effect from 1.4.1976 envisaging that in case of fee for technical services, a payee/ non-resident need not have rendered any service in India or place of business or business connection in India. It was further stressed that the Board’s circular hereinabove had already been withdrawn. All these resulted in the impugned disallowance u/s 40(a)(i) of the Act.

The assessee has succeeded in the lower appellate 5. proceedings. The CIT(A) holds that these commission payments are not taxable as income in India so as to warrant TDS deduction.

We have heard both parties and perused the case file. The 6. assessee has not deducted TDS in making the impugned export commission payments to its overseas agents. The Assessing Officer treats the same as fee for technical services u/s 9(1)(vii). There is no evidence forthcoming in support of this plea so far as element of technical services rendered by the export agents is concerned. We find that the hon'ble jurisdictional high court in CIT vs Faizan Shoes Pvt. Ltd. [2014]367 ITR 155 (Mad) has held that such export commission payments are not in the nature of fee for technical

I.T.A.No.1744/13 :- 4 -: services. The Revenue fails to point out any distinction on facts.

Therefore, we uphold the CIT(A)’s findings. The Revenue’s ground is rejected.

This leaves us with the second issue of disallowance of 7. development expenses on SIPCOT’s leased land amounting to `9,81,191/-. The assessee had occupied SIPCOT’s land on lease for 99 years. It had paid development charges of ` 1,96,23,800/- thereupon alongwith other expenses. A bipartite agreement executed between these two entities provides as under:

“14 (ii) The plot deposit alone shall be refunded by the Party of the First Part to the Party of the Second Part on the expiry of the period of lease and on compliance with all the terms of the lease. In the event of surrender by the party of the second part, the plot deposit will be refunded in full after forfeiting the initial deposit and processing fee by the party of the first part. The development charges will be refunded after forfeiting an amount of 5% per year or part thereof for the number of years the plot was held by the party of the second part subject to a minimum deduction of 15% and no compensation for improvement of building or other structures erected in the plot shall be made by the party of the first part.”

The assessee adjusted the impugned amount of ` 8.

9,81,191/- @ 5% thereof on development charges. It was pleaded that the lease period was 99 years having 5% retention condition annually. It is stated that this 5% retention money had only been I.T.A.No.1744/13 :- 5 -: claimed as development charges for 20 years. The Assessing Officer examined the aforesaid lease agreement and observed that development charges paid are one time and non-refundable. The assessee’s expenditure was categorized to have been spent on transfer in the nature of capital giving enduring benefits. Based on this reasoning, the Assessing Officer concluded that these development charges claimed at amortized rate @ 5% are not reckoning revenue expenditure or an allowable item and made the impugned disallowance.

The CIT(A) accepts the assessee’s ground and holds as 9. under:

“ 15. Admittedly, the development charges are paid in lumpsum as per lease agreement at the beginning of the lease. Clause 14(ii) also lays down that the development charges would be refunded if the lease expires before completion of lease period by deducting 5% of the amount per each year. This, it is implied that the development charges get depleted by 5% for every year of lease. In this scenario, the assessee’s claim is right and acceptable. The disallowance is directed to be deleted.”

We have heard both sides and gone through the case record. 10.

Factual backdrop of the issue already stands narrated. SIPCOT lessor has received a lumpsum development charges of ` 1,96,23,800/-. Its 5% comes to the impugned sum. The lease period in question is 99

I.T.A.No.1744/13 :- 6 -: years. Clause 14(ii) of the lease agreement reproduced hereinabove provides for retention of development charges @ 5% every year. The assessee has booked this sum annually as an expenditure pertaining to the impugned assessment year. The Assessing Officer treats it as a case of amortization. In these circumstances, we agree with the CIT(A) that this yearly retention money reduces development charges paid hereinabove. The Revenue fails to point out any illegality or irregularity in the lower appellate order. In these circumstances, we agree with the CIT(A)’s findings. This ground also stands rejected.

The Revenue’s appeal is dismissed. 11.

Order pronounced on Friday, the 6th of February, 2015, at Chennai.