TaxTMI 
TaxTMI 
2016 (8) TMI 1311
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....irming the action of Ld. AO in making an addition of Rs. 1,71,13,377/- being the amount of service tax deducted by the customers from the amounts payable to the appellant in terms of section 66A of the Finance Act, 1994, by holding that the same is to be included in the taxable income of the appellant for the relevant assessment year. 1.1 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the liability to deposit service tax applicable on the services rendered by the appellant vests with the customers of the appellant under the reverse charge mechanism in terms of section 66A of the Finance Act, 1994. 1.2 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the above amount did not accrue to the appellant and, therefore, the same cannot form part of the income earned by the appellant. 2. The Ld. CIT(A) has erred in confirming the action of the Ld. AO in levying interest under section 234B of the Act. The appellant craves leave to add, alter, modify or delete any grounds of appeal at or before the time of hearing." (B). A.Y. 2009-10 : 1. The Ld. CIT(A) has erred i....
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.... income as on 27/09/2008 declaring total income at Rs. 18,86,36,050/-, which was processed as such u/s. 143(1) of the 'Act'. Thereafter, the case of the assessee company was taken up for scrutiny proceedings, wherein the A.O taking cognizance of the fact that as against the amount of royalty of Rs. 24,82,77,879/- on which tax had been deducted at source by the customers, as revealed by the TDS certificates for the year under consideration, the assessee company in its 'Return of income' had only accounted for royalty amount of Rs. 18,86,36,050/-, therefore called upon the assessee company to put forth an explanation as regards the short/deficit amount of royalty of Rs. 5,96,41,829/-[i.e Rs. 24,82,77,879/- (-) Rs. 18,86,36,050/-], which was reconciled by the assessee company as under:- S.No Particulars Amount 1. Difference for the reason that as against accounting of the royalty income on the basis of 'Cash system' of accountancy followed by the assessee company, tax was deducted at source by the customers on 'accrual' or 'receipt', whichever was earlier. Rs. 4,25,28,452/- 2. Difference for the reason that the A.O had included the amount which was reduced by t....
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....the same outside India. It was submitted by the Ld. A.R that though the assessee company initially objected to the said act of the customers, but thereafter being left with no option, accepted the said act of the customers. It was thus submitted by the Ld. A.R that as neither any income equivalent to the amount of the service tax reduced by the customers from the fee/royalty payable to the customers had at any point of time ever accrued to the assessee company, nor was ever received by the latter, as a result whereof, as the said amount did never partake the color and character as that of 'Income', therefore the assessee company could not be saddled with taxes as regards the same. The Ld. A.R for the assessee company took us through section 66A, as had been made available on the statute vide the Finance Act, 2006, w.e.f 18.04.2006, providing for levy of service tax in cases where specified services are provided by a non-resident to a resident from outside India, as per which, on the basis of mechanism of 'reverse charge', where an Indian resident receives taxable services from a non-resident, then such recipient of service is treated as deemed service provider and is liable for pay....
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...., the contention of the Ld. A.R for the assessee company was that as regards the amount of service tax reduced by the customers from the fee/royalty payable to the assessee company, now when no income to the said extent had resulted at all to the assessee company, therefore the issue of bringing the said amount to tax in the hands of the assessee company did not arise at all. That alternatively, it was further submitted by Ld. A.R that as the assessee company was consistently maintaining its 'books of accounts' on 'Cash basis', as per which income could only be recognized when the assessee company received the same, therefore as no amount was ever received by the assessee company to the extent the same had been reduced by the customers on account of service tax, thus on the said count too the amount could not be brought to tax in the hands of the assessee company. The Ld. A.R in support of his aforesaid contention therein relied upon the following case laws:- (i). DIT-I vs. Mitchell Drilling Internation (P) Ltd., (2015), 62 taxamann.com 24(Del) (ii). The ADIT(IT) 3(1) vs. Haldor Topsoe A/c., ITA No.4431/M/05 & 6868/Mum/2007 order dated 25/04/2012. (iii). ....
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....ext refer to the case of Punjab Distilling Industries Ltd. v. CIT(1959) 35 ITR 519 (SC). In that case certain amounts received by the assessee were described as security deposits. This Court found that those amounts were an integral part of the commercial transaction of the sale of liquor and were the assessee's trading receipt. In dealing with the contention that those amount were entered in a separate ledger termed "empty bottles return security deposit account", this Court observed: "So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was sold. Nor does it make any' difference that the price of the bottles was entered in the general trading account while the so-called deposit was entered in a separate ledger termed 'empty bottles return deposit account' for, what was a consideration for the sale cannot cease to be so by being written in the books in a particular manner" 10. We, therefore, agree with the High Court in so far as it has answered the question referred to it in the negative and against the appellant. The appeal consequently fails and is dismissed with ....
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....mpany, nor the latter stands vested with any right to recover such amount from the said customers, can be construed as the income of the assessee company, or not. 4.1. We are persuaded to agree with the contention of the Ld. A.R that in light of the facts involved in the case of the present assessee company, the amount of Rs. 1,71,13,377/-(supra) reduced by the customers on account of service tax liability from the amount of fees/royalty, which otherwise but for the said reduction would had been payable to the assessee company, and remitting of only the balance amount by the customers in full and final discharge of their liability as regards the fees/royalty payable to the assessee company, which had been accepted, agreed upon and acknowledged by the assessee company, as such, coupled with the fact that the assessee company had not retained with itself any right as regards recovery of any such amounts deducted by the customers qua the liability towards service tax as was so cast upon them, therefore in light of the aforesaid facts as they so remain, cannot be treated as the income of the assessee company. In this regard it would be relevant and pertinent to point out that as nei....
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....r, that the Hon'ble Apex Court not going by the nomenclature adopted by the assessee as regards the said 'receipt', therein concluded that it was the nature and quality of receipt as would prove decisive, and held that the amount of 'Sales tax' so collected by the assessee would form part of its trading or business receipt, though subject to a rider that the assessee would stand entitled to claim deduction of the amount, as and when the same is deposited with the State exchequer. Thus unlike the facts involved in the case before the Hon'ble Supreme Court, now when in the case of the present assessee company before us, neither any part of the aforesaid amount so reduced by the customers from the amount of fees/royalty which otherwise would had been payable to the assessee company, had at any point of time accrued as income to the assessee company, nor was the same ever received by the latter, therefore the said amount cannot be held to be 'Income' in the hands of the assessee company. Now adverting to the order of the Hon'ble ITAT Delhi 'I' Bench, so passed in the case of : DDIT(Intl). Vs. Technichip Offshore Contracting Br. (Appeal No. ITA 4613/D/07; dated. 16/01/2009), relied upon....
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.... the A.O u/s 234B of the 'Açt', on the ground that as the entire income of the assessee company was subject to deduction of tax at source (for short 'TDS'), therefore the latter was not liable to pay any advance tax, and thus no liability towards interest u/s 234B of the 'Act' could be fastened upon it. That before the CIT(A) the assessee company in support of its aforesaid contention placed reliance on the following judicial pronouncements:- (i). Motorola Inc. Vs. DCIT [96 ITD 269(Del)(SB)] (ii). Sedco Forex International Drilling Inc. Vs. DCIT [72 ITD 415 (Del)] (iii). CIT & Anr. Vs. Sedco Forex International Drilling Co. Ltd. & Ors [264 ITR 320(Uttaranchal)] (iv). CIT Vs. Madras Fertilizers Ltd. [149 ITR 703](Mad) (v). CIT Vs. Ranoli Investments Pvt. Ltd. [235 ITR 433](Guj) The Ld. CIT(A) however being of the view that unlike as per the facts involved in the case laws relied upon before him, the assessee company had not offered its income for taxation following any recognized method of accounting, and rather as a matter of fact had understated its taxable income and claimed refund of TDS, therefore upheld the interest levied by....
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....t with the contention of the Ld. A.R that where there is short/non-deduction of tax at source by the payers, as regards certain income which had been taken into account in computing the total income of an assessee, the assessee cannot be held to be in default, and for the sake of clarity rely on the observations of the Hon'ble Madras High Court in the case of : Madras Fertilizers Ltd. (supra), wherein it was held by the Hon'ble Court, as under: - "Hence, where the statute provides for deduction of tax at source in respect of a particular income, the concerned assessee need not pay any advance tax in relation to the said income. 4.7. That still further a perusal of Sec. 234B reveals that once an assessee falls within the scope and ken of Sec. 208 of the 'Act' and is found liable to pay advance tax, but had either failed to pay the same or the amount so paid by him is less than ninety percent of the assessed tax, he therein stands liable to be fastened with interest u/s 234B of the 'Act'. In context of the issue under consideration before us, it would be relevant and pertinent to point out that unlike Sec. 209(1)(d) of the 'Act', wherein in the process of computing the ad....