2024 (2) TMI 1190 - AT - Income Tax

ITAT rules on TDS exemption under Indo-Belgium DTAA, section 14A disallowance computation, and investment promotion subsidy treatment

The Deputy Commissioner of Income Tax, Non Corporate Circle 8 Versus M/s. Saint-Gobain India Pvt. Ltd. [Formerly known as M/s. Saint-Gobain Glass India Ltd.], Chennai

ITAT Chennai ruled on multiple tax issues. On TDS non-deduction for commission payments, the tribunal directed the AO to re-examine the MFN clause in ... Addition u/s 40(a)(i) - Royalties and fees for technical services - non-deduction of TDS on the commission payment - scope of MFN clause available in the protocol of Indo-Belgium DTAA - HELD THAT:- As decided by the Coordinate Bench of the Tribunal for assessment year 2007-08 [2018 (10) TMI 2024 - ITAT CHENNAI] CIT(A) held that the payment made to SG Exprover cannot be considered to partake of the nature of “fees for technical services” and allowed the ground raised by the assessee without obtaining any comments from the AO. Under the above facts and circumstances, we direct the Assessing Officer to examine the MFN clause available in the Protocol of Indo-Belgium DTAA as to whether the same shall override the specific provisions laid down under Article 12 and decide the issue afresh in accordance with law. Thus we direct the Assessing Officer to re-examine and decide the issue afresh in accordance law. Thus, the ground raised by the Revenue is allowed for statistical purposes. Disallowance u/s 14A - investments which yield exempt income during the year under consideration - HELD THAT:- As perused the decision of Vireet Investment (P) Ltd [2017 (6) TMI 1124 - ITAT DELHI] wherein, it has been held that while computing the disallowance under section 14A of the Act read with Rule 8D(2)(ii)/(iii) of Income Tax Rules, 1962, only the investments which yielded exempt income during the year under consideration are to be included for the purpose of average value of investments. DR could not controvert the above decision of the Delhi Special Bench. Thus, we find no infirmity in the order of the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue. Disallowance u/s 14A added in the book profit u/s 115JB - HELD THAT:- As decided in Beach Minerals Company P. Ltd [2015 (8) TMI 1031 - ITAT CHENNAI] and Vireet Investment (P) Ltd [2017 (6) TMI 1124 - ITAT DELHI] computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D of the Income Tax Rules. Hence, we are of the opinion that the ld. CIT(A) has rightly directed the Assessing Officer to delete the addition made to book profits with respect to the disallowance made under section 14A r.w.s. Rule 8D. Nature of receipt - investment promotion subsidy - revenue receipt or capital receipt - HELD THAT:- We find that in the case of Shree Balaji Alloys [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] by considering its own judgement in the case of CIT v. Ponni Sugars & Chemicals Ltd. [2008 (9) TMI 14 - SUPREME COURT] dismissed the appeal of the Department and upheld the judgement of Hon’ble High Court of Jammu & Kashmir in the case of Shree Balaji Alloys & Others v. CIT, [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] wherein has held Excise refund and interest subsidy received by the assessee in pursuance to the incentives announced and sanctioned are capital receipts. Thus we find that the subsidy received by the assessee has close proximity with the industrial policy of the Government of Tamil Nadu as notified vide GO No. 43 and in addition, GO No. 80 also states that the incentive is given towards Investment Promotion Subsidy. Therefore, the incentive subsidy has to be considered as capital receipt. As in the present case, the assessee has invested more than ₹. 300 crores in pursuance of GO issued by the Tamil Nadu Government and therefore, the subsidy received by the assessee has close proximity with the State Government policy. Thus the ground raised by the Revenue is dismissed. Issues Involved:1. Deletion of addition made under section 40(a)(i) of the Income Tax Act.2. Re-computation of disallowance under section 14A of the Income Tax Act.3. Addition of disallowance under section 14A in the book profit under section 115JB of the Income Tax Act.4. Treatment of investment promotion subsidy as revenue receipt or capital receipt.Summary:Issue 1: Deletion of addition made under section 40(a)(i) of the Income Tax ActThe Tribunal addressed the deletion of the addition made under section 40(a)(i) of the Act. The issue was previously considered for the assessment year 2007-08, where it was remitted back to the Assessing Officer to examine the MFN clause in the Indo-Belgium DTAA protocol. The Tribunal directed the Assessing Officer to re-examine and decide the issue afresh in accordance with the law, allowing the ground raised by the Revenue for statistical purposes.Issue 2: Re-computation of disallowance under section 14A of the Income Tax ActThe Tribunal reviewed the CIT(A)'s direction to the Assessing Officer to recompute the disallowance under section 14A of the Act to the extent of investments yielding exempt income. This was based on the Special Bench of ITAT's decision in Vireet Investments, which held that only investments yielding exempt income should be included for the purpose of average value of investments. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the ground raised by the Revenue.Issue 3: Addition of disallowance under section 14A in the book profit under section 115JB of the Income Tax ActThe Tribunal considered whether the disallowance under section 14A could be added to the book profit under section 115JB. Following precedents, including the Delhi Special Bench's decision in Vireet Investment and the case of Beach Minerals Company, the Tribunal upheld the CIT(A)'s direction to delete the addition made to book profits concerning the disallowance under section 14A. The Revenue's ground was dismissed.Issue 4: Treatment of investment promotion subsidy as revenue receipt or capital receiptThe Tribunal examined whether the investment promotion subsidy received by the assessee from the Government of Tamil Nadu was a revenue or capital receipt. The subsidy was provided under a scheme to promote mega investments in the state. The Tribunal, following the Supreme Court's decision in Shree Balaji Alloys and other relevant case laws, concluded that the subsidy was capital in nature. The Tribunal upheld the CIT(A)'s direction to delete the addition of Rs. 4,92,53,755, dismissing the Revenue's appeal.Conclusion:The appeal in ITA No. 581/Chny/2021 was partly allowed for statistical purposes, while the appeal in ITA No. 585/Chny/2021 was dismissed. The order was pronounced on December 20, 2023, in Chennai.