TaxTMI 
TaxTMI 
2019 (4) TMI 550
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....0(a)(ia) of the act in respect of commission expenses) 3. During the course of assessment, the assessing officer noticed that assessee has claimed commission payment of Rs. 3,47,81,265/- to various non-residents on export sales made during the year under consideration. After verification of the detail filed, the assessing officer observed that assessee has not deducted tax on such commission payment made to nonresidents, therefore, the assessee was asked to explain why no TDS was made as per provisions of section 195 of the act on such commission payment. The assessee explained that the non-resident agents to whom the commission was paid have rendered services outside India. The assessee has further submitted that as per provision of section 5 and section 9 of the income tax act, no part of commission income was received or deemed to be received in India. It was further submitted that section 195 has to read with the provision of section 4, 5 and 9 of the act and if the payment made to nonresident is not at all chargeable to tax in India then no deduction of tax at source is required to be made on such payments. The assessee has also placed reliance on the decision of Hon'ble Su....
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.... of GE India Technology Centre (Pvt.) Ltd. Vs. CIT (2010) 327 ITR 456/193 taxman 234/7 taxman/com 18 that for application of section 195, it is sine quo non that the payment to nonresident must have an element of income liable to be taxed under the income tax act, 1961. 5. We have heard the rival contention and perused the material on record carefully. The assessing officer has disallowed the commission paid to foreign agents by holding that the income arising on account of commission paid to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the provision of section 5(2)(b) r.w.s. 9(1)(i) of the act and the assessee has failed to make compliance with the provisions of section 195(2) of the act. With the assistance of ld. representatives, we have gone through the material on record. In this case, the non-residents agents have rendered their services outside India. All the agents have overseas offices and they were not having any permanent establishment in India. As per explanation below section 9(2) state that income of non-resident shall be deemed to accrue or arise in India under clause (v) or (vi) or (vii) of subsection (1) included in th....
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....ntention on this issue. It is undisputed fact that assessee has not earned and claimed any exempt income during the year under consideration, therefore, we consider that ld. CIT(A) has rightly deleted the disallowance after following the decision of Jurisdictional High Court of Gujarat in the case of Corrtech Energy Pvt. Ltd. 45 taxman.com 116 (Guj). Therefore, we do not find any merit in this ground of appeal of the revenue and the same is dismissed. C.O. No. 01/Ahd/2015 filed by assessee 9. At the time of hearing, ld. counsel of the assessee has not pressed this cross objection, so, the same is dismissed as not pressed. ITA N. 305/Ahd/2015 filed by revenue 1st and 2nd grounds of appeal of disallowance of commission payment u/s.40(a)(ia) of the act 10. The assessing officer has disallowed the commission paid to foreign agent by holding that the income arising on account commission payable to overseas agents was deemed to accrue or arise in India and was accordingly taxable under the provisions of section 5(2)(b) r.w.s. 9(1)(i) of the income tax act and the assessee has failed to make compliance with provision of sedition 195(2) of the act. The assessing officer h....
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....tained 190.17 141.57 48.60 Assets As on 31.03.2011 As on 31.03.2010 Acquired during the year Fixed Assets 178.55 157.63 20.92 CWIP 26.07 4.51 21.56 The assessee has objected to the observations of the assessing officer and made the following submissions:- "The assessee, vide its letters dated 30.01.2014 further submitted as under: "We are giving the figures of Share Capital and Free Reserves, Investment infixed Assets, creditors for Capital Goods. It will be seen that assessee has sufficient funds to finance the CWIP as at 31/03/2010. No Loan was availed during FY 31/03/2010. The figure fo term loan as at 31/03/2009 & 31/03/2010 may be reused. The increase infixed assets (actually put to use during FY 31/03/2010 may also be considered. It will be seen that all earlier loan are utilized in that year itself. The opening CWIP has been considered while calculating the capitalization of interest of current year. The amount affixed assests put to use & capital work in progress month wise has been considered at pro rata interest has been capitalized. Interest on the ....
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....,192 Nov-2010 5,00,00,000 5,00,00,000 3,69,863 3,69,863 Dec-2010 6,25,00,000 11,25,00,000 11,25,00,000 4,39,990 4,39,990 Jan-2011 5,60,72,123 16,85,72,123 2,20,08,231 ^10,06,366 8,74,978 Feb-2011 7,58,03,210 24,43,75,333 8,02,71,855 13,02,711 8,74,799 Mar-2011 10,91,21,292 35,34,96,625 11,55,31,501 20,87,111 14,04,991 Total Interest to be capitalized 50,49,554 Less: Already capitalized by the assessee 32,64,147 Net Interest on borrowed fund to be capitalized 17,85,407 Consequently the assessing officer has disallowed amount of Rs. 17,85,407/- u/s. 36(1)(iii) of the act. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of ld. CIT(A) is reproduced as under:- "3.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO noted that there was an increase in value of fixed assets as well as capital work in progress. The appellant had d....
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....ng into account by applying a capitalisation rate to the expenditure on that asset. The guidelines specifies that the capitalisation rate should be the weighted average of the borrowing cost applicable to the borrowing of the enterprise that is the outstanding during the period. The method of the AO by capitalising the total loan borrowed for CWIP as long as the Cumulative borrowings are less than the CWIP is not correct as there is no specific borrowing for a particular asset and the appellant has also invested its own money before purchase of assets which was subsequently financed. The method adopted by the appellant is as per the guidelines issued by the ICAI and has also been certified by the chartered accountant in the Audit Report. In view of these facts, I am inclined to accept the submission and calculation given by the appellant. The disallowance made by the AO is therefore, directed to be deleted. The ground of appeal is accordingly, allowed." 14. We have heard the rival contention and perused the material on record carefully. The assessee has given the working of interest capitalized to the amount of Rs. 32,64,147/- after taking into consideration the capital expendit....
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.... vs. CIT (2003) 262 ITR 278 wherein it is held that such business profit that has direct nexus to the essential business activity can qualify for deduction. The assessing officer has further referred the decision of the Supreme Court in the case of Cambay Electronic Supply Industrial Company Ltd. vs. CIT (1978) 1133 ITR 84 wherein it is held that expression "attributable" was used when the legislature intended to cover the receipt from sources other than the actual conduct of the business. The assessing officer has also stated that in this case the sale of steam would have been liable as deduction u/s. 80IA(iv) if the legislature has used the word profit "attributable to" instead to "derived from" the industrial undertaking. The assessing officer has stated that the Apex Court in the case of CIT vs. Sterling Foods (1999) 237 ITR 579 has held that only such business profit that have direct nexus to the essential business activity of the assessee can qualify for deduction. Consequently, the assessing officer has disallowed the deduction of Rs. 32,51,080/- u/s. 80IA(iv) of the act and added to the total income of the assessee. The assessing officer has also stated that the assessee ha....
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....sion given by the appellant was forwarded to the AO vide this office letter dated 15/09/2014. The AO submitted comments on the calculation given by the appellant vide office letter dated 15/10/2014. The comments given by the AO were also given to the appellant and it has also submitted its rejoinder. The relevant extracts of the AO's report as well as the rejoinder submitted by the appellant have been reproduced in the preceding pages. On a careful consideration of the entire facts related to the issue and also considering the additional evidences submitted by the appellant it is noted that the following issues are to be decided here:- 1. Whether the rate of sale of electricity should be taken at Rs. 6.25 per unit or at 2.5 per unit as taken by the AO? 2. Whether the appellant is entitled deduction under section 80 IA on sale of steam to the chemical plant? 3. What would be the allocation of expenditure between the eligible and non-eligible units? 4. Whether the depreciation on the eligible unit is to be allowed after considering the carry forward depreciation or only current year's depreciation? The above issues are decided here....
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....herefore, the deduction was admissible. On a careful consideration of the facts related to the issue, it is noted that the appellant is generating steam at high-pressure and temperature and the steam is being fed into turbine and the steam which is coming out from turbine is utilised for the chemical process. The details on record to show that the turbine utilised by the appellant for generation of the power is a back pressure turbine. In back pressure turbine the intake is of high-pressure steam which is used for generation of power and the exhaust steam is also at certain pressure so that it can utilised for some other purpose. The design of the turbine is done in such a manner so that all energy of the steam is not utilised by the turbine for generation of power but certain part of it is released in the exhaust steam also. Therefore, the design of the turbine used by the appellant is in such a manner that the exhaust steam is at a certain pressure so that it can be utilised for some other work. Accordingly, this steam cannot be considered as a byproduct but it is intentionally being produced or generated for a specific purpose. Further the intention of the legislature w....
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....ioned in the ratio of enthalpy of the inlet and output steam. The same is worked out as under: - Total enthalpy of the steam coming out of the boiler 793 kcal per KG The enthalpy of the steam coming out of the turbine 653 kcal per KG The enthalpy utilised by the turbine for generation of electricity 139 kcal per KG Percentage of energy utilised in the generation of electricity 17.66% Total expenses for generation .of steam to be allocated on a percentage basis Boiler expenses 1800000 Boiler maint. 1 728903 Coal expenses 38733894 Depreciation other than turbine 10522945 Total expenses 52785832 Expenses for steam utilised for 17.66% of 52785832 generation of electricity = 9321977 In addition to above expenses for generation of steam, the expenses of head office of the appellant company which looks after the management or the affairs of-the Company and also the power plant are also to be disallowed on proportionate basis. It is also noted that the appellant has taken loan from financial institutio....
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....noted that issue is squarely covered in favour of the appellant by the decision of honourable ITAT Ahmedabad in many cases some of which are also relied by the appellant. Since the appellant has claimed the deduction under section 80 I-A for generation of electricity for the first time, the current assessment year is to be taken as initial assessment year. The depreciation and other losses, if any, pertaining to the same unit for earlier years should not be adjusted from the claim of the present year. The judgement relied by the AO has been overruled by the Ahmedabad bench itself by following the judgement of Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt Ltd 340 ITR 477. The claim of the appellant is accordingly allowed. It would be useful to mention here that in while calculating the allowable deduction in the preceding paragraphs the depreciation claim of the current year only has been taken into account. However, the A.O is directed to determine the correct figures of depreciation while giving effect to this order. The ground of appeal is accordingly allowed." 17. During the course of appellate proceedings before us, ld. counsel has placed reliance on the....
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....alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of learned counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income-tax Act, 1961, does not define the word "power". The New Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bioenergy Ltd.'s case (supra), while deciding the issue whether generation of steam amounts to generation of power or not for the pu....
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....m of power as per the dictionary meaning reproduced by the learned Commissioner of Income-tax (Appeals) at pp. 5 and 5 (sic) of the first appellate order. We also concur with the view of the learned authorised representative that there is little room for any doubt that scientifically or in general parlance, 'production of steam' 'generation of steam1: or for that matter, 'production of electricity' and 'generation of electricity', shall have the same meaning whichever of the two be the item under consideration. In this regard the learned authorised representative has also referred to the definition of word 'generate' under section 2(29) of the Electricity Act, 2003 as per which 'generate' means to produce electricity from a generating station for the purpose of giving supply to its any premises or enabling a supplier to be so given. The Assessing Officer has tried to point out the intention of the Legislatures by referring to section 80-IA(4)(iv)(b) to infer that intention is to provide benefit to the generation of electricity only, since in the sub-clause (b) transmission and distribution lines are mentioned which can be of electricity o....
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....f the age of steam. Thus there is no doubt, like electricity, steam is also a form of power. The arguments advanced on behalf of the assessee also find support from the decision of the Delhi Bench of the Tribunal in the case ofSial SBEC Bioenergy Ltd. v. Dy. CIT [2004] 83 TTJ (Del) 866 on an identical issue wherein dealing with the matter in detail, it has been held that the word 'power' has to be given a meaning which is in common parlance and in common parlance the word 'power' shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under section 80- IA(4)(iv), held the Tribunal. Under these circumstances, we fully concur with the decision on the issue arrived at by the learned Commissioner of Income-tax (Appeals) that the assessee is in the business of generation of power and that the steam so generated by the industrial undertaking and receipt from the business of industrial undertaking is within the meaning of section 80-IA which would quali....