2019 (2) TMI 234 - AT - Income Tax

Tribunal Grants Stay Petition for Recovery of Demand, Orders Payment in Installments

United Spirits Limited Versus The Joint Commissioner of Income Tax, Special Range-7, Bangalore

The Tribunal granted the stay petition for recovery of outstanding demand to the assessee, ordering payment of a specified sum in two installments. The ... Stay for recovery of outstanding demand - total tax payable by the assessee excluding interest u/s.234B & 234C - Held that:- Since the passing of the earlier order of Tribunal in Stay petition for AY 12-13, balance of convenience, financial and other hardships, we are of the view that it would be just and appropriate to direct the assessee pay a further sum of ₹ 10 crores in two instalments i.e., Rs. Five Crores (Rs.5,00,00,000) on or before 31st January, 2019 (31.01.2019) and another sum of Rs. Five Crores (Rs.5,00,00,000) on or before 10th February, 2019 (10.02.2019) as a condition for grant of stay. In this regard, we notice that the total tax payable by the assessee excluding interest u/s.234B & 234C of the Income Tax Act, 1961 (Act) is ₹ 492,73,02,320, out of which the assessee has already paid ₹ 163,18,13,536, leaving balance tax payable of ₹ 329,54,88,784. The assessee has further paid a sum of ₹ 150 crores, thereby 45.5% of the outstanding demand in respect of taxes already stands discharged by the assessee. Taking into consideration these aspects, we have fixed a sum of ₹ 10 crores to be paid in two instalments by the assessee which will make the payment of outstanding demand of taxes by the assessee to almost 50% of the tax payable. This will sufficiently safeguard the interest of the assessee as well as the interest of revenue. The stay petition is ordered accordingly. The appeal is fixed already for hearing on 14.02.2019 and the parties will not seek any adjournment on the date of hearing, without just and sufficient cause and are requested to co-operate in the disposal of appeal by the Tribunal at the earliest. Accordingly, there will be a stay of recovery of outstanding demand subject to the conditions already mentioned hereinabove for a period of six (6) months from the date of this order, or till the disposal of the appeal, whichever is earlier. Issues:Stay petition for recovery of outstanding demand based on various additions made by revenue authorities for AY 2013-14.Analysis:1. Interest Income on Advances to Overseas Subsidiary:- The outstanding demand included a sum related to determination of arm's length interest income on advances to overseas subsidiary.- The Taxation Officer (TPO) applied a 14.18% rate of interest, but the assessee argued for using the LIBOR rate of 0.23% based on legal precedents.- Citing decisions like CIT v. Vaibhav Gems Ltd. and Sasken Technologies Ltd., the assessee contended that applying the correct rate would reduce the tax effect significantly.2. Corporate Guarantee Fee:- Another issue was the determination of arm's length price for a corporate guarantee given to the associated enterprise (AE).- The TPO fixed a 3% guarantee fee, while a Tribunal decision suggested 0.50% as the appropriate fee, leading to a substantial reduction in the addition made to total income.3. Disallowance under Section 14A:- The Assessing Officer disallowed expenses under Section 14A amounting to &8377; 45.75 crores, which the assessee argued should not exceed the exempt income of &8377; 2.29 crores.- Citing rulings like DCIT v. State Bank of Patiala and Pragathi Krishna Gramin Bank v. JCIT, the assessee contended that the disallowance should be limited to the exempt income.4. Brand Promotion Expense Treatment:- The revenue authorities disallowed brand promotion expenses as capital expenditure, resulting in additional tax liability.- Referring to the decision in Indo Nissin Foods Ltd., the assessee argued that such expenses are revenue in nature and should not be treated as capital expenditure, leading to a reduction in tax payable.5. Financial Hardship and Balance of Convenience:- The assessee claimed severe financial hardship and requested a stay on recovery of the outstanding demand.- The Tribunal considered the prima facie case, change in circumstances, balance of convenience, and financial hardships before directing the assessee to pay a further sum as a condition for granting the stay.6. Decision and Order:- The Tribunal ordered the assessee to pay a specified sum in two installments as a condition for granting the stay.- The decision took into account the tax already paid by the assessee and aimed to safeguard both the assessee's and revenue's interests.- The stay was granted subject to conditions for a specified period or until the appeal's disposal.This detailed analysis of the judgment highlights the various legal issues, arguments presented by the parties, relevant legal precedents, and the Tribunal's decision in granting the stay petition for the recovery of outstanding demand.