DCIT, Circle - 8(1), Kolkata v. M/s. TM International Logistics Ltd., Kolkata

ITA 2567/KOL/2019 | 2011-2012
Pronouncement Date: 24-03-2021 | Result: Dismissed

Appeal Details

RSA Number 256723514 RSA 2019
Assessee PAN AABCT5399M
Bench Kolkata
Appeal Number ITA 2567/KOL/2019
Duration Of Justice 1 year(s) 3 month(s) 13 day(s)
Appellant DCIT, Circle - 8(1), Kolkata
Respondent M/s. TM International Logistics Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 24-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 24-03-2021
Last Hearing Date 11-03-2021
First Hearing Date 11-03-2021
Assessment Year 2011-2012
Appeal Filed On 11-12-2019
Judgment Text
I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [ BEFORE SHRI J. SUDHAKAR REDDY AM AND SHRI A. T. VA RKEY JM ] I.T.A. NO.2567/KOL/2019 ASSESSMENT YEAR: 2011-12 DCIT CIRCLE-8(1) KOLKATA V. M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA (PAN:AABCT5399M) APPELLANT RESPONDENT C.O. 12/KOL/2020 (IN I.T.A. NO.2567/KOL/2019) ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA (PAN:AABCT5399M) V. DCIT CIRCLE-8(1) KOLKATA CROSS-OBJECTOR RESPONDENT DATE OF HEARING 11.03.2021 DATE OF PRONOUNCEMENT 24.03.2021 FOR THE APPELLANT SMT. RANU BISWAS ADDL. CIT FOR THE RESPONDENT SHRI NAGESWAR RAO AR ORDER PER SHRI A. T. VARKEY JM: THIS APPEAL PREFERRED BY THE REVENUE AND CROSS-OBJE CTION BY THE ASSESSEE ARE AGAINST THE ORDER OF LD. CIT (APPEALS)-7 KOLKATA D ATED 25.09.2019 FOR ASSESSMENT YEAR 2011-12. 2. GROUND NO.1 OF THE REVENUE AND GROUND NO.5 O F THE C.O OF THE ASSESSEE IS AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING TH E DISALLOWANCE MADE BY THE A.O I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 2 AMOUNTING TO RS.60 92 442/- ON ACCOUNT OF ROYALTY P AYABLE TO KOLKATA PORT TRUST (HEREINAFTER KOPT) WHICH HAS BEEN SHOWN IN THE BOOK S AS ESTIMATED LIABILITY. 3. BRIEF FACTS OF THE CASE AS NOTED BY THE A.O IS T HAT ON A PERUSAL OF THE AUDITED BALANCE SHEET OF THE ASSESSEE HE OBSERVED THAT ASS ESSEE HAS CHARGED AN AMOUNT OF RS.3 26 85 306/- IN THE P&L A/C AGAINST ROYALTY PAI D TO KOPT. THE A.O ASKED THE ASSESSEE TO PROVIDE THE DETAILS OF THE PAYMENT AND THE TDS DEDUCTED AND PAID THEREOF. ACCORDING TO THE A.O THE ASSESSEE SUBMITT ED THAT IT HAS PROVIDED A SUM OF RS.60 92 442/- ON ACCOUNT OF ROYALTY PAYABLE TO KOP T AND THE SAID PROVISION HAS BEEN CREATED PURSUANT TO THE INDEPENDENT AUDITORS REPORT WITH WHICH THE COMPANY DOES NOT AGREE. ACCORDING TO THE A.O THIS STATEMEN T CLEARLY SHOWS THAT A SUM OF RS.60 92 442/- WAS IN THE NATURE OF A PROVISION AND THEREFORE AN UNASCERTAINED LIABILITY. ACCORDING TO HIM THE ASSESSEE HAD DEDUC TED TDS ON THE PAYMENT OF RS.2 65 92 864/- WHILE THE BALANCE AMOUNT OF RS.60 92 442/- HAD BEEN PROVIDED IN THE BOOKS AS ESTIMATED LIABILITY ON WHICH TDS WA S NEITHER DEDUCTED NOR PAID. ACCORDING TO HIM IT IS EVIDENT THAT THE SUM OF RS. 60 92 442/- IS MERELY AN ESTIMATED LIABILITY ARISING OUT OF A CONTRACTUAL OBLIGATION W HICH IS UNDER DISPUTE AND THE ARBITRATION PROCEEDINGS ARE GOING ON AND THEREFORE THE FATE OF THIS LIABILITY IS CONTINGENT UPON THE OUTCOME OF THE ARBITRATION. IN OTHER WORDS THIS LIABILITY HAS NOT CRYSTALLIZED AS ON 31.03.2011 AND IS A CONTINGENT L IABILITY ON THE BALANCE SHEET SUBMITTED BY THE ASSESSEE; AND SINCE THIS LIABILITY WAS ALSO NOT PAID BY THE ASSESSEE THIS BEING A CONTINGENT LIABILITY THE SUM OF RS.60 92 442/- WAS DISALLOWED FOR DEDUCTION AS EXPENDITURE U/S.37 OF THE ACT AND ADDE D BACK IN COMPUTING THE INCOME. THEREAFTER THE A.O OBSERVES THAT THE ASSESSEE DEBI TED THIS EXPENDITURE IN RESPECT OF BERTH NO.12 AT HALDIA WHICH IS ELIGIBLE FOR DEDUCTI ON U/S.80IA OF THE ACT. THEREFORE THIS DISALLOWANCE WILL REFLECT INTO FRESH COMPUTATI ON OF DEDUCTION U/S 80IA OF THE ACT AND THEREFORE HE DISALLOWED RS.60 92 442/-. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 3 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE SAME BY HOLDING AS UNDER: 5.2. HAVE CONSIDERED THE SUBMISSION OF THE AR OF T HE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. THE BRIEF FACTS OF THE MATTER ARE THAT AN AMOUNT OF 60 92 442/- TREATED AS A PROVISION TOWARDS ROYALTY PAYABLE TO KOLKATA PORT TRUST (KOPT) WAS DEBITED TO THE P&L A/C OF THE APPELLANT. THE AO OBSERVED THAT SUCH AMO UNT WAS IN THE NATURE OF A PROVISION AND THEREFORE AN UNASCERTAINED LIABILITY ON WHICH T DS WAS NOT EFFECTED. THE AO FURTHER 'OBSERVED THAT THIS LIABILITY HAD NOT CRYSTALLIZED AS ON 31.03.2011 AND BEING CONTINGENT IN NATURE WAS NOT AN ALLOWABLE EXPENDITURE U/S 37 OF T HE ACT. 1 FIND THE SIMILAR ISSUE HAD BEEN DECIDED BY THE ERSTWHILE JURISDICTIONAL CIT(A) IN T HE APPELLANT'S OWN CASE FOR THE AY 2009- 10 (SUPRA) WHEREIN THE CLAIM OF THE APPELLANT WAS A LLOWED VIDE APPEAL NO. 759/CIT(A)- 3/CIR-8(1)/KOL/14-15 DATED 05. 12.2018. AT THE ITAT STAGE AS WELL THE APPEAL FILED BY THE DEPARTMENT ON THE SAME ISSUE AGAINST THE APPELLANT FOR THE AY 2009-10 WAS DISMISSED (SUPRA) VIDE 1TA NO.988/KO/2013 DATED 17.03.2017. I N SUCH VIEW OF THE MATTER SINCE THERE ARE JUDICIAL PRECEDENTS IN FAVOUR OF THE APPELLANT IN THE MATTER UNDER DISPUTE THE AO IS DIRECTED TO DELETE THE IMPUGNED DISALLOWANCE OF RS. 60 92 442/-. THESE GROUNDS ARE ALLOWED. 5. AGGRIEVED THE REVENUE HAS PREFERRED AN APPEAL B EFORE US AND THE ASSESSEE HAS PREFERRED GROUND NO. 5 OF ITS C.O. I.E. WITHOUT PRE JUDICE TO THE ACTION MADE BY THE A.O AND THE LD. CIT(A) WHO HAS DELETED THE DISALLOWANC E HOWEVER ACCORDING TO THE ASSESSEE EVEN IF THIS EXPENDITURE IS DISALLOWED S INCE THIS EXPENDITURE CLAIMED WAS IN RESPECT OF BERTH NO.12 AT HALDIA WHICH THE AO HAS A CCEPTED TO BE ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT THEN IN ANY EVENT E VEN IF THE REVENUE SUCCEEDS ON THIS GROUND OF APPEAL THEN THE ASSESSEE SHOULD BE GIVEN THE CONSEQUENTIAL RELIEF WHILE COMPUTING THE 80IA DEDUCTION. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. IT WAS BROUGHT TO OUR NOTICE THAT IN ASSESSEES OWN CASE SIMILAR ISSUE H AD CROPPED UP IN A.Y 2009-10 WHEREIN THE A.O IN SIMILAR FACTUAL CIRCUMSTANCES HA D DISALLOWED THE EXPENDITURE AND THE LD. CIT(A) HAD ALLOWED IT AND THIS ACTION WHEN CHALLENGED BY THE REVENUE BEFORE THE TRIBUNAL WAS ADJUDICATED IN ASSESSEES FAVOUR BY UPHOLDING THE LD. CIT(A)S ACTION BY HOLDING AS UNDER: 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. AS PER THE LICENCE AGREEMENT GRANTED TO IT BY KOPT THE ASSESSEE IS OPERATING BE RTH NO.12 AND THE PROFIT OF BERTH NO.12 IS ELIGIBLE FOR 100% TAX HOLIDAY. AS PER THE AGREEMENT BETWEEN THE KOPT AND THE ASSESSEE THE ASSESSEE SHOULD OBTAIN INDEPENDENT AUDITORS REPORT CERTIFYING THE FINAL ROYALTY PAYMENT. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 4 BEFORE OBTAINING THE INDEPENDENT AUDITORS REPORT T HE ASSESSEE HAD PAID ROYALTY AS PER ITS OWN CALCULATION BASED ON THE AGREEMENT. HOWEVER ACCORD ING TO ASSESSEE THE COMPUTATION OF ROYALTY BY THE INDEPENDENT AUDITOR WAS VERY HIGH. T HEREFORE A MUTUAL SETTLEMENT FOR THIS ISSUE WAS ATTEMPTED BY THE ASSESSEE WITH KOPT. BUT THE SA ID EXERCISE FAILED SO THE ASSESSEE INVOKED THE ARBITRATION CLAUSE AND THE MATTER IS BE FORE THE ARBITRATOR. THE AMOUNT FOR WHICH THE PROVISION WAS MADE OF RS.2 76 60 137/- WHICH I S THE AMOUNT WHICH THE ASSESSEE NEEDS TO PAY EXTRA THAN WHAT THE ASSESSEE HAS PAID TO THE KO PT. THE LD. CIT(A) HAS TAKEN NOTE OF THE FACT THAT AS PER THE AGREEMENT THE FINAL ROYALTY F IGURE HAS TO BE COMPUTED BY THE INDEPENDENT AUDITOR AND ACCORDING TO THE KOPT IT IS CORRECT AND FINAL. SO AS PER THE AGREEMENT THE AMOUNT WHICH THE INDEPENDENT AUDITOR HAS COMPUTED A S THE FINAL ROYALTY FIGURE HAS CRYSTALLIZED AND THEREFORE IS AN ALLOWABLE BUSINE SS EXPENDITURE. IN CASE IF THE ASSESSEE IS ABLE TO SUCCEED IN THE ARBITRATION PROCEEDINGS THEN THE ASSESSEE BY VIRTUE OF THE ORDER GETS ANY BENEFIT IN ANY SUBSEQUENT ASSESSMENT YEARS BY WAY O F CESSATION OR REMISSION WHICH HAS BEEN ALLOWED AS A DEDUCTION IN THE PRESENT ASSESSMENT YE AR THEN THE SAID AMOUNT CAN BE BROUGHT FOR TAXATION BY INVOKING THE PROVISION OF SECTION 4 1(1) OF THE ACT. 13. THEREFORE IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND WE ARE INCLINED TO DISMISS THE APPEA L OF THE REVENUE. 14. IN THE RESULT THIS GROUND OF APPEAL OF THE REV ENUE IS DISMISSED. 7. THE REVENUE BEFORE US COULD NOT POINT OUT ANY CH ANGE IN FACTS AND LAW THEREFORE RESPECTFULLY FOLLOWING THIS ORDER IN THE ASSESSEES OWN CASE AND ALSO RELYING ON SUPREME COURTS DECISION IN THE CASE OF BHARAT E ARTH MOVERS IN 245 ITR 428 (SC) WHEREIN IT WAS HELD IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN T HE ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CER TAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIM ATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF T HESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRESENT THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. THEREFORE WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE AND CONSEQUENTLY GROUND NO.5 OF THE C.O OF THE ASSESSEE STANDS DISMISSED BEING INFRUCTUOUS. 8. GROUND NOS.2 & 3 OF THE REVENUE ARE AGAINST THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE BY THE A.O U/S 40(A) (IA) OF THE ACT AMOUNTING TO RS.1 57 12 909/- DUE TO NON-DEDUCTION OF TDS ON PA YMENT TO M/S TATA STEEL LTD. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 5 9. BRIEF FACTS OF THE CASE AS NOTED BY THE A.O IS T HAT THE A.O ON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE NOTED THAT THE AS SESSEE HAS CLAIMED EXPENSES AMOUNTING TO RS.1 57 12 909/- IN ITS P&L A/C ON ACC OUNT OF FEES RELATED TO MANAGEMENT CONTRACTS . ACCORDING TO HIM IT IS EVIDENT THAT THE ASSESSE E WAS REQUIRED TO DEDUCT TDS ON SUCH PAYMENT AND HE ASKED THE ASSE SSEE TO EXPLAIN WHY TDS WAS NOT DEDUCTED ON SUCH PAYMENT. ACCORDING TO AO IN R ESPONSE THE ASSESSEE STATED THAT THE AFOREMENTIONED SUM REPRESENTED EXCESS MARGIN MO NEY RECEIVED FROM M/S TATA STEEL LTD. WHICH WAS RETURNED BACK; AND THE ASSESSE E POINTED OUT THAT SINCE THE INCOME /RECEIPT RECEIVED FROM M/S TATA STEEL LTD. HAS ALRE ADY BEEN CREDITED AS INCOME IN THE P&L A/C AND SINCE THIS SUM REPRESENTED EXCESS MARGI N MONEY PAID TO IT THIS REVERSAL OF RS.1 57 12 909/- TO M/S TATA STEEL LTD. CANNOT B E SUBJECTED TO TAX. THE A.O DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE BECAUSE A CCORDING TO HIM AS THE ASSESSEE HAS ENTERED INTO A CONTRACT WITH M/S TATA STEEL LTD. AN D HAS ITSELF CHARACTERIZED THE EXPENSES THEREON AS FEES RELATED TO MANAGEMENT CON TRACTS THIS CONTENTION IS NOT TENABLE. ACCORDING TO THE A.O SINCE THE ASSESSEE H AS NOT DEDUCTED TDS ON SUM PAID PAYMENT AMOUNTING TO RS.1 57 12 909/- WAS DISALLOWE D U/S 40(A)(IA) OF THE ACT AND MADE THE ADDITION. 10. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO WAS PLEASED TO DELETE THE SAME BY HOLDING AS UNDER: 6.2. 1HAVE CONSIDERED THE SUBMISSION OF THE AR OF THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. THE BRIEF FACTS OF THE ISSUE AT H AND ARE THAT THERE WAS A PAYMENT OF 1 57 12 909/- MADE BY THE APPELLANT ON ACCOUNT OF F EES RELATED TO MANAGEMENT CONTRACTS DURING THE YEAR UNDER CONSIDERATION. ON BEING QUERI ED BY THE AO ON THE MATTER VIS--VIS NON DEDUCTION OF TAX AT SOURCE ON SUCH PAYMENT THE ASS ESSEE STATED THAT THE AFORESAID SUM REPRESENTED EXCESS MARGIN MONEY RECEIVED FROM TATA STEEL LTD. WHICH WAS ALREADY CREDITED IN THE P&L A/C AND THEREFORE ANY PAYMENT OUT OF THE SAID SUM COULD NOT BE SUBJECTED TO TAX WITH THE FURTHER CONTENTION THAT PAYMENT OUT OF AN INCOME COULD NOT BE SUBJECTED TO TAX. HOWEVER THE AO WAS NOT IN AGREEMENT WITH THE SUBMI SSION OF THE AR OF THE ASSESSEE AND INSISTED THAT TDS WAS OUGHT TO HAVE BEEN EFFECTED O N THE ABOVE PAYMENT OF 1 57 12 909/- (SUPRA). ON AN OVERALL ANALYSIS OF THE ISSUE AT HAN D THE SALIENT POINTS ARISING OUT OF THE SUBMISSION OF THE AR (SUPRA) COULD BE SUMMARIZED AS FOLLOWS: 1. THAT THE APPELLANT HAD NOT RECEIVED ANY SERVICE IN RESPECT OF THE AMOUNT OF RS.1 57 12 909 DEBITED IN THE PROFIT AND LOSS ACCOU NT. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 6 2. THAT AN AGREEMENT SUBSISTED BETWEEN TATA STEEL L TD. (TSL) AND THE APPELLANT (TMILL) TO THE EFFECT THAT TMILL WAS ENTITLED .TO R ECEIVE 'STIPULATED MARGIN MONEY' ON THE BASIS OF PROJECTED VOLUME OF TONNAGE' 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE (SUPRA) THE AMOUNT OF 1.57 CRORES DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS A MERE R EVERSAL OF IRRECOVERABLE FEE WHICH WAS RECOGNIZED AS INCOME FROM PORT RELATED SERVICES . THAT THE LEARNED A0 HAD FAILED TO APPRECIATE THAT TMILL HAD NOT RECEIVED ANY SUCH SERVICES FROM TSL DURING THE YEAR ON WHICH TAX COULD HAVE BEEN DEDUCTED AT SOURC E. 4 THAT THE AMOUNT OF RS.1.57 CRORES WAS ADJUSTED BY TSL AGAINST THE SUBSEQUENT INVOICES RAISED BY TMILL. HENCE TMILL HAD NOT SEPA RATELY REFUNDED OR PAID SUCH AMOUNT TO TSL 5 THAT THE ACCOUNTING TERMINOLOGY USED IN THE BOOKS OF ACCOUNTS CANNOT DETERMINE THE REAL NATURE OF THE TRANSACTION AND THAT IT HAS BEEN HELD THAT THE TREATMENT IN BOOKS OF ACCOUNTS IS NOT THE ONLY CONCLUSIVE AND DETERMINATI VE FACTOR TO DETERMINE THE TREATMENT FOR TAX PURPOSE. CASE LAWS RELEVANT TO TH E ISSUE ARE CITED (SUPRA). 6. THAT TDS WAS NOT APPLICABLE AS THE TRANSACTION W AS NOT IN THE NATURE OF ANY PAYMENT AS SPECIFIED IN THE TDS PROVISIONS OF THE A CT. I FIND FROM THE POINTS AS DELINEATED ABOVE THE NAT URE OF PAYMENT OF RS.1 57 12 909/- COULD NOT HAVE ATTRACTED ANY PROVISIONS OF THE ACT IN THE MAT TER OF TDS SINCE THE IMPUGNED PAYMENT RELATED TO A REVERSAL OF INCOME AS EXPLAINED SUPRA ON WHICH TDS PROVISIONS OF THE ACT COULD NOT HAVE BEEN APPLIED IN ANY MANNER. ON SUCH FACTS OF THE MATTER I FIND THE A.O WAS ON A WRONG NOTION IN APPLYING THE PROVISIONS OF SECTION 40(A)(IA) IN MAKING THE IMPUGNED DISALLOWANCE. IN VIEW OF THE FOREGOING THE A.O IS DIRECTED TO DELETE THE IMPUGNED DISALLOWANCE/ADDITION OF RS.1 57 12 909/-. THIS GRO UND IS ALLOWED. 11. AGGRIEVED THE REVENUE IS BEFORE US. WE HAVE HEA RD BOTH THE PARTIES AND PERUSED THE RECORDS. WE NOTE THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1 57 12 909 RELATING TO FEES FOR MANAGEMENT CONTRACTS (WHICH I S IN THE NATURE OF CARGO HANDLING FEES). THE A.O HAS HELD THAT NO SATISFACTORY EXPLAN ATION WAS PROVIDED FOR NON- DEDUCTION OF TDS UNDER SECTION 194C OF THE ACT ON T HE SAID AMOUNT TO M/S TATA STEEL. THEREFORE HE DISALLOWED THIS AMOUNT U/S 40(A)(IA) OF THE ACT. ACCORDING TO THE ASSESSEE IT DID NOT RECEIVE ANY SERVICE IN RESPECT OF THE AMOUNT OF RS.1 57 12 909 DEBITED IN THE PROFIT AND LOSS ACCOUNT AND THAT THE AMOUNT OF RS. 1.57 CRORES WAS IN FACT ADJUSTED BY TATA STEELS AGAINST SUBSEQUENT INVOICES RAISED BY THE ASSESSEE. ACCORDINGLY THE ASSESSEE CLAIMED THAT TDS PROVISIO NS ARE NOT APPLICABLE ON THE SAME. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 7 12. IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSEE (IN SHORT TMILL) HAD ENTERED INTO AN AGREEMENT WITH TATA STEEL LIMITED (TSL) F OR HANDLING TONNAGES FOR RESPECTIVE DIVISIONS OF THE TSL AT DIFFERENT PORTS. IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT TMILL WAS ENTITLED TO RECEIVE A 'STIPULATED MARGIN MONEY ' ON THE BASIS OF 'PROJECTED VOLUME OF TONNAGE '. AS PER THE TERMS OF THE AGREEMENT AT THE END OF EVERY YEAR THE ACTUAL VOLUMES HANDLED BY TMILL WILL BE R EVIEWED. IN CASE THE AGGREGATE ACTUAL VOLUME HANDLED BY TMILL IS DIFFERENT FROM TH E AGGREGATE PROJECTED VOLUME THEN NECESSARY ADJUSTMENT TO THE EXTENT OF (+) / (- ) 5% OF OVERALL PROJECTED MARGIN WOULD BE AFFECTED BY TSL. THE LD. AR SHRI NAGESWAR RAO DREW OUR ATTENTION TO THE RELEVANT EXTRACT OF THE AGREEMENT ALONG WITH THE WO RKING OF CARGO HANDLING FEES PLACED AT PAGE NO.165 TO 168 OF PB AND ACCORDING TO HIM A NY EXCESS OVER SUCH AGGREGATED PROJECT VOLUME IS NOT RECOVERABLE FROM TSL. AND IT WAS BROUGHT TO OUR NOTICE BY THE LD. AR THAT FOR FY 2010-11 (I.E. RELEVANT TO AY 2011-12) TMILL WAS ENTITLED TO RECEIVE THE STIPULATED MARGIN / CONSIDERATION OF RS 4.2 CRORES FOR HANDLING TONNAGES OF TSL ( I.E. AGGREGATE PROJECTED VOLUME OF 32 12 851 METRIC TONNES RS 12.45 PER METRIC TONNE ). HOWEVER ACCORDING TO THE LD. AR TMILL HAD ACTU ALLY HANDLED AGGREGATE TONNAGE OF 46 35 476 METRIC TONS RESULTING IN THE AGGREGATE ACTUAL INVOICING OF RS 5.77 CRORES. THE SAID MARGIN OF RS.5.77 CRORES WAS DULY RECOGNIZED AS INCOME IN THE BOOKS OF ACCOUNTS. THEREFORE SINCE THE AGGREGATE A CTUAL VOLUME HANDLED BY TMILL WAS IN EXCESS OF THE AGGREGATE PROJECTED VOLUME TM ILL WAS ENTITLED TO RECEIVE ONLY 5% OF THE PROJECTED AGGREGATE MARGIN IN RESPECT OF THE EXCESS TONNAGE HANDLED BY IT. THE LD. A.R DREW OUR ATTENTION TO THE CHART WHEREIN THE FACTUAL DETAILS ARE PROVIDED WHICH IS REPRODUCED FOR READY REFERENCE AS UNDER: SL NO. ITEM DESCRIPTION AMOUNT (RS. IN CRORES) PARTICULARS A AGGREGATE MARGIN/CONSIDERATION FOR PROJECTED VOLUME 4 THE PROJECTED MARGIN/CONSIDERATION IS DETERMINED ON THE BASIS OF MUTUAL NEGOTIATION BETWEEN TSL AND TMILL (I.E. 32 12 851 METRIC TONS * RS.12.45 PER METRIC TON). I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 8 B STIPULATED AGGREGATE MARGIN MONEY AS PER AGREEMENT [I.E. 105% OF (A)] SINCE THE VOLUME HANDLED IS MORE THAN PROJECTED VOLUME 4.2 AS PER THE TERMS OF THE AGREEMENT TMILL IS ENTITLED TO RECEIVE MAXIMUM OF 5% OF THE AGGREGATE PROJECTED MARGIN FOR EXCESS TONNAGE HANDLED. THUS TMILL IS ENTITLED TO RECEIVED MAXIMUM CARGO HANDLING FEE OF RS.4.2 CRORES FROM TSL FOR FY 2010-11. C AGGREGATE MARGIN FOR ACTUAL VOLUME HANDLED BY TMILL DURING FY 2010-11 5.77 TMILL HAS HANDLED ACTUAL VOLUME OF 46 35 476 METRIC TONS DURING THE YEAR AT DIFFERENT PORTS. THE SAME HAS BEEN RECOGNIZED AS INCOME FROM PORT SERVICES IN THE FINANCIAL STATEMENT. D EXCESS MARGIN MONEY DEBITED AS MANAGEMENT FEES IN THE PROFIT AND LOSS ACCOUNT [.E. (C) LESS (B)] 1.57 (I.E. 5.77 LESS 4.2) THE CARGO HANDLING FEE TO THE EXTENT OF RS 1.57 CRORES WAS NOT RECOVERABLE FROM TSL. ACCORDINGLY THE SAME WAS REVERSED BY DEBITING THE PROFIT AND LOSS ACCOUNT BY THE SAID AMOUNT. 13. ACCORDING TO THE LD. AR THE AMOUNT OF RS 1.57 CRORES DEBITED IN THE PROFIT AND LOSS ACCOUNT IS A MERE REVERSAL OF IRRECOVERABLE FE E WHICH WAS RECOGNIZED AS INCOME FROM PORT RELATED SERVICES. ACCORDING TO HIM THE A O HAS FAILED TO APPRECIATE THAT TMILL HAS NOT RECEIVED ANY SUCH SERVICES FROM TSL D URING THE YEAR ON WHICH TAX COULD BE DEDUCTED AT SOURCE. THE LD AR FURTHER SUBM ITTED THAT TMILL PROVIDED SUCH PORT RELATED SERVICES TO TSL ON A REGULAR BASIS. TH US THE AMOUNT OF RS 1.57 CRORES WAS ADJUSTED BY TSL AGAINST THE SUBSEQUENT INVOICES RAI SED BY THE ASSESSEE (TMILL). HENCE TMILL HAS NOT SEPARATELY REFUNDED OR PAID SU CH AMOUNT TO TSL. HENCE THE PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE I S NOT APPLICABLE ON SUCH ADJUSTMENT / TRANSACTION AND THE LD. AR DREW OUR ATTENTION TO PA GE NO.163 164 AND 169 OF THE PB TO SUPPORT THE AFORESAID AVERMENTS. WE FIND THAT PAGE NO.163 OF PB THE ASSESSEE HAD PRODUCED THE WRITTEN CONFIRMATION FROM TSL CONFIRMI NG THAT THE SURPLUS AMOUNT OF RS.157.3 LAKHS IN RELATION TO CARGO HANDLING FEES W AS PAID/ADJUSTED TO TSL IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE WOR K ORDER. WE NOTE THAT THE TSL HAS CONFIRMED THE SAME AT PAGE 164 OF THE PB AS UNDER: FURTHER THE CONTRACT WAS REVIEWED BASED ON ACTUAL VOLUME HANDLED AND AGGREGATE ANNUAL MARGIN AT THE END OF F.Y 2010-11. ACCORDINGLY THE SURPLUS AMOUNT OF RS.1.57 CRORES RECEIVED I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 9 BY TM INTERNATIONAL LOGISTICS LIMITED BEYOND THE M AXIMUM AGGREGATE MARGIN AS STATED ABOVE WAS PAID/ADJUSTED TO TATA STEEL LIMITED. 14. AND AT PAGE NO.169 THE CHART SHOWS THE PROJECT MARGIN MAXIMUM MARGIN ACTUAL MARGIN AND FEES IN RELATION TO MANAGEMENT CO NTRACTS. WE NOTE THAT THE AMOUNT OF RS 1.57 CRORES DEBITED IN THE PROFIT AND LOSS AC COUNT IS A MERE REVERSAL OF IRRECOVERABLE FEE/EXCESS MARGIN MONEY. THUS WE FIND THAT THE LD. CIT(A) HAS RIGHTLY REVERSED THE ACTION OF THE A.O AND ALLOWED THE CLAI M OF THE ASSESSEE IN RESPECT OF RS.1 57 12 909/- AND IT IS A TRITE LAW THAT THE ACC OUNTING TERMINOLOGY USED IN THE BOOKS OF ACCOUNTS CANNOT DETERMINE THE NATURE OF THE TRAN SACTION [ KEDARNATH JUTE MANUFACTURING CO. LTD. V. CIT [1971] 82 ITR 363 (SC)]. THUS WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND SO WE CONFIRM THE S AME. 15. COMING TO THE CROSS-OBJECTION OF THE ASSESSEE I S CONCERNED WE NOTE THAT EVEN THOUGH THE ASSESSEE HAD RAISED TWO GROUNDS OF APPEA L INITIALLY NOW BEFORE US THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS VIDE LETTER DATED ON 04.03.2021. ON A PERUSAL OF THE SAME IT IS NOTED THAT THESE ARE LEGAL ISSUES A ND THEREFORE THEY ARE ADMITTED. 16. GROUND NO.1 OF THE C.O OF THE ASSESSEE IS AGAIN ST THE ACTION OF THE LD. CIT(A) IN RESPECT TO THE DISALLOWANCE MADE BY THE A.O U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES 1962 (HEREINAFTER REFERRED TO AS THE RULES). 17. BRIEF FACTS OF THE CASE AS NOTED BY THE A.O IS THAT HE NOTED THAT THE VALUE OF INVESTMENTS AS ON 01.04.2010 AND 31.03.2011 STOOD A T RS.39 04 43 958/- AND RS.41 76 71 872 RESPECTIVELY. THE A.O NOTED THAT TH E TOTAL AMOUNT OF TAX EXEMPT INCOME FROM SUCH INVESTMENT EARNED BY WAY OF DIVIDE ND AMOUNTS TO RS.58 53 717/-. THE A.O ASKED THE ASSESSEE TO FURNISH DETAILS OF E XPENSES INCURRED ON SUCH INVESTMENTS FOR EARNING EXEMPT INCOME. THE A.O NOTE D THAT PURSUANT TO THE SAME THE ASSESSEE REPLIED THAT THE ASSESSEE COMPANY DID NOT INCUR ANY EXPENDITURE FOR EARNING THE SAID DIVIDEND INCOME AND THEREFORE ACCORDING TO IT NO DISALLOWANCE NEEDS TO BE MADE IN THIS REGARD. THE A.O DID NOT CONCUR WITH TH E CONTENTION OF THE ASSESSEE SINCE I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 10 ACCORDING TO HIM INVESTMENTS WERE MANAGED AND MONIT ORED TO YIELD OPTIMUM RETURNS TO THE COMPANY AND AS SUCH THE CLAIM THAT NO EXPENS ES WERE INCURRED IN MAINTAINING THE SAME IS ERRONEOUS. THE A.O NOTED THAT THE ASS ESSEE DID NOT MAINTAIN ANY SEPARATE BOOKS OF ACCOUNTS FOR ACCOUNTING FOR EXPENSES INCUR RED IN RELATION TO INCOME NOT INCLUDIBLE IN ITS TOTAL INCOME. THEREFORE ACCORDING TO AO THE AMOUNT OF EXPENSES ACTUALLY INCURRED BY THE ASSESSEE TO EARN EXEMPT IN COME CANNOT BE ASCERTAINED FROM THE ASSESSEE'S BOOKS OF ACCOUNTS SATISFACTORILY TH EREFORE HE INVOKED SECTION 14A OF THE ACT READ WITH RULE 8D AND MADE DISALLOWANCE AS UNDER: AS PER RULE 8D(2)(II) THE AVERAGE OF VALUE OF INVESTMENT IS RS.40 40 57 9 15/- AS WORKED OUT EARLIER. IN THIS VIEW OF THE MATTER THE DISALLOWANCE UNDER RULE 8D(2)(II) I S MADE AS UNDER: DISALLOWANCE U/R 8D(2)(III) = 0.5% OF THE AVERAGE O F VALUE OF INVESTMENT =0.5% OF RS.40 40 57 915 = RS.20 20 290/- THEREFORE RS.20 20 290/- IS ADDED BACKK U/S 14A RE AD WITH RULE 8D (2) IN COMPUTING THE INCOME UNDER NORMAL PROVISIONS AS WELL AS IN COMPUT ING BOOK PROFIT U/S 115JB. 18. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A) WHO GAVE PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 4.1. I HAVE CONSIDERED THE SUBMISSION OF THE AR OF THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER. THE BRIEF FACTS OF THE MATTER ARE THAT SINCE THE APPELLANT HAD EARNED EXEMPT DIVIDEND INCOME OF RS.58 53 717/-DURING THE RELEVAN T YEAR THE A.O FOUND IT FIT TO MAKE A DISALLOWANCE OF RS.20 20 290/- U/S 14A R.W. RULE 8D (2)(II). I FIND THAT AGAINST THE EARNING OF EXEMPT INCOME THE APPELLANT HAD NOT MADE ANY SUO M OTO DISALLOWANCE WHICH I FIND TO BE NOT CORRECT. THE APEX COURT IN THE CASE OF MAXOPP INVES TMENTS LTD. HAS HELD THAT IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INC OME THAT MUCH OF THE EXPENDITURE WHICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISAL LOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. THE DOMINANT PURPOSE FOR WHICH THE INV ESTMENT INTO SHARES IS MADE BY AN ASSESSEE MAY NOT BE RELEVANT. FACT REMAINS THAT SUC H DIVIDEND INCOME IS NON-TAXABLE AND IF EXPENDITURE IS INCURRED ON EARNING THE DIVIDEND INC OME THAT MUCH OF THE EXPENDITURE WHICH IS ATTRIBUTABLE TO THE DIVIDEND INCOME HAS TO BE DISAL LOWED. I FIND THE AO HAS RIGHTLY MADE DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2). HO WEVER IT IS WELL SETTLED THAT AS PER THE THIRD LIMB OF RULE 8D(2) 0.5% OF INVESTMENT IN SHA RES SHOULD BE CONSIDERED ONLY ON THE DIVIDEND YIELDING SCRIPTS. IN THIS REGARD THE AO IS DIRECTED TO CONSIDER ONLY THOSE INVESTMENTS IN SHARES WHICH YIELDED EXEMPT DIVIDEND INCOME FOR WORKING OUT THE DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2) OF THE I.T. RULES 1962. I N THIS REGARD THE AR IS ALSO DIRECTED TO COOPERATE WITH THE AO IN THE MATTER. WITH REGARD TO THE ADJUSTMENT OF DISALLOWANCE MADE U/S I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 11 14A IN COMPUTING THE INCOME U/S 115JB I FIND THAT SUCH ADJUSTMENT CANNOT BE MADE AS RULED BY VARIOUS JUDICIAL DECISIONS. FROM A PLAIN READING OF THE PROVISIONS OF SECTION 115JB (BOOK PROFIT) THERE IS NO SCOPE OF MAKING ANY ADJUSTMENT ON ACCOUNT OF DISALLOWANCE MADE U/S 14A OF THE ACT. THEREFORE THE ADDITION IN THIS REGARD IS DIRECTED TO BE DELETED. THESE GROUNDS ARE TREATED AS PARTLY ALLOWED. 19. AGGRIEVED THE ASSESSEE IS BEFORE US. WE HAVE HE ARD BOTH THE PARTIES AND PERSUED THE RECORDS. WE NOTE THAT THIS ISSUE HAS ALREADY CO ME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2009-10 WHEREIN THE TRI BUNAL HAS HELD AS UNDER: 19. WE HAVE HEARD BOTH THE PARTIES AND PERSUED THE RECORDS. WE NOTE THAT THE ASSESSEE RECEIVED A SUM OF RS.66 40 434/- AS DIVIDEND INCOME WHICH HAS BEEN CLAIMED AS EXEMPT BY THE ASSESSEE. THE A.O BEING NOT SATISFIED WITH THE REPL Y OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND INCOME APPLIED RULE 8 D(III) AND DISALLOWED 0.5% OF AVERAGE INVESTMENT VALUE OF RS.28 31 99 120/-. ON APPEAL TH E LD. CIT(A) CONFIRMED THE DISALLOWANCE BY SIMPLY STATING THAT RULE 8D IS APPLICABLE FROM A .Y. 2009-10. THE CONTENTION OF THE ASSESSEE IS THAT THE COMPUTATION OF RULE 8D(II) CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THE EXEMPT INCOM E IN OTHER WORDS THE ASSESSEE'S CONTENTION IS THAT ONLY THE INVESTMENT MADE ON DIVIDEND BEARIN G SHARES CAN ONLY ATTRACT RULE 8D(II) AND FOR THE SAID PROPOSITION HAS RELIED ON THE ORDER OF THE CO-ORDINATE BENCH IN REI AGRO LTD. VS. DCIT 144 ITD 141 (CAL). WE FIND FORCE IN THE CONTEN TION OF THE LD. AR AND WE ARE INCLINED TO ACCEPT THE SAME AND THEREFORE WE SET ASIDE THE OR DER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO TO COMPUTE RULE 8D(II) O NLY IN RESPECT OF THE INVESTMENT MADE BY ASSESSEE IN SHARES WHICH RESULTED IN DIVIDEND IN TH E INSTANT ASSESSMENT YEAR. WITH THE AFORESAID DIRECTION WE REMAND THE MATTER BACK TO TH E FILE OF THE AO AND THE AO IS DIRECTED TO COMPUTE THE DISALLOWANCE OF 0.5 PERCENT AS DIRECTED ABOVE. 20. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL ON THE SAME ISSUE WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THEREF ORE WE DISMISS THIS GROUND OF C.O OF THE ASSESSEE. 21. GROUND NO.2 OF C.O READS AS UNDER: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED A.O BE DIRECTED TO ALLOW THE DEDUCTION OF EDUCATION CESS ON THE INCOME TAX PAID GIVEN THE FACT THAT THE SAME IS NOT HIT BY THE PROVISIONS OF SECTION 40(A)(II) OF T HE ACT AND HENCE IS AN ALLOWABLE DEDUCTION. 22. THE LD. AR OF THE ASSESSEE CONTENDED THAT THE G ROUND NO.2 3&4 ARE SIMILAR IN NATURE AND CAN BE DISPOSED OF TOGETHER. 23. THE ADDITIONAL GROUNDS OF IN C.O ARE AS UNDER: I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 12 GROUND 3.1 : THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSESSING OFFICER (AO) BE DIRECTED TO RECOMPUTE T HE DDT LIABILITY BY CONSIDERING THE BENEFIT OF APPLICABLE DTAA BETWEEN INDIA - NETHERLA NDS AND INDIA - GERMANY RESPECTIVELY QUA THE RATE OF TAX (I.E. 10%) TOWARDS PAYMENT OF D IVIDEND TO THE NON-RESIDENT SHAREHOLDERS NAMELY NYK HOLDING EUROPE B.V. NETHERLANDS AND IQ MARTRADE HOLDING UND MANAGEMENT GMBH GERMANY. GROUND 3.2 : THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ASSESSEE FURTHER CONTENDS THAT LOWER RATE OF TAXABI LITY AT 5% OF DIVIDEND INCOME SHALL APPLY ON THE DIVIDENDS PAID TO NYK HOLDING EUROPE B.V. NE THERLANDS BY VIRTUE OF THE MOST FAVOURED NATION (MFN) CLAUSE AVAILABLE IN THE PRO TOCOL TO THE DTAA BETWEEN INDIA AND NETHERLAND AS SUCH LOWER RATE HAS BEEN AGREED BY T HE GOVERNMENT OF INDIA WITH ANOTHER MEMBER OF THE OECD I.E. SLOVENIA AT A SUBSEQUENT D ATE. GROUND 3.3 : THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ASSESSEE CONTENDS THAT IN TERMS OF SECTION 90(2) RE AD WITH SECTION 10(34) OF THE ACT THE DIVIDEND INCOME BEING TAXABLE IN THE HANDS OF THE N ON-RESIDENT IT COULD NOT BE SUBJECTED TO A RATE IN EXCESS OF THE RATE PRESCRIBED UNDER THE D TAAS. GROUND 3.4 : THAT AS PER THE PROVISIONS OF SECTION 237 OF THE AC T READ WITH ARTICLE 265 OF THE CONSTITUTION OF INDIA ONLY LEGITIMATE TAX COUL D HAVE BEEN RETAINED BY THE GOVERNMENT. GROUND 3.5 : THAT THE LEARNED AO BE DIRECTED TO EXTEND THE BENEF IT OF APPLICABLE DTAAS QUA THE RATE OF TAX TOWARDS PAYMENT OF DIVIDEND TO THE NON-RESIDENT SHAREHOLDERS AND GRANT REFUND OF THE EXCESS TAX DEPOSITED. DEDUCTION OF EDUCATION CESS ON DDT PAID FOR THE AY AS ALLOWABLE EXPENDITURE GROUND 4.1 : THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION OF ED UCATION CESS ON THE DDT PAID IN RESPECT OF RESIDENT SHAREHOLDERS GIVEN THE FACT THAT THE S AME WAS NOT HIT BY THE PROVISIONS OF SECTION 40(A)(II) OF THE ACT AND HENCE IS AN ALLOWABLE DEDU CTION. GROUND 4.2 : WITHOUT PREJUDICE TO GROUND NO. 3 ABOVE THAT ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED A O BE DIRECTED TO ALLOW THE DEDUCTION OF EDUCATION CESS ON THE DDT PAID IN RESPECT OF NON-RE SIDENT SHAREHOLDERS GIVEN THE FACT THAT THE SAME WAS NOT HIT BY THE PROVISIONS OF SECTION 4 0(A)(II) OF THE ACT AND HENCE IS AN ALLOWABLE DEDUCTION. 24. THE GROUND NO.2 IN C.O RAISED BY THE ASSESSEE I S IN RESPECT OF DEDUCTION OF EDUCATION CESS ON INCOME-TAX PAID BY THE ASSESSEE W HICH IT CLAIMS AS AN ALLOWABLE EXPENDITURE. WE NOTE THAT THIS ISSUE RELATING TO ED UCATION CESS AS TO WHETHER IT IS AN ALLOWABLE EXPENDITURE OR NOT IS NO LONGER RES-INTEGRA AND HAS COME UP BEFORE THIS TRIBUNAL IN THE CASE OF RECKITT BENCKISER (I) PVT. LTD. VS. DCIT IN ITA I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 13 NO.404/KOL/2015 & ITA NO.625/KOL/2016 DECIDED ON 17 /06/2020 WHEREIN THIS TRIBUNAL HAS DEALT WITH THIS ISSUE AS UNDER: 55. THE SECOND ADDITIONAL GROUND RAISED BY THE ASSE SSEE READS AS FOLLOWS: '2.DEDUCTION OF EDUCATION CESS ON INCOME TAX PAID B Y THE ASSESSEE IS ALLOWABLE EXPENDITURE. THIS GROUND RELATES TO A.Y 2011-12.' 56. WE NOTE THAT ISSUE RAISED BY THE ASSESSEE IN TH IS ADDITIONAL GROUND IS NO LONGER RES- INTEGRA. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT EDUCATION CESS IS NOT TAX AND HENCE NOT DISALLOWABLE U/S 40(A)(II) OF THE ACT. WE NOTE THAT THE CBDT CIRCULAR NO. 91/58/66 - ITJ(19) DATED 18-05-1967 WHEREIN IT HAS BEEN CLARIFIED THA T THE EFFECT OF OMISSION OF THE WORD 'CESS' FROM SEC. 40(A)(II) OF THE ACT IS THAT ONLY TAXES P AID ARE TO BE DISALLOWED AND NOT CESS. RELEVANT EXTRACT OF CIRCULAR IS AS UNDER:- 'RECENTLY A CASE HAS COME TO THE NOTICE OF THE BOAR D WHERE THE ITO HAS DISALLOWED THE 'CESS' PAID BY THE ASSESSEE ON THE GROUND THAT THERE HAS BEEN NO MATERIAL CHANGE IN THE PROVISIONS OF S. 10(4) OF THE OLD ACT AND S. 40(A)(II) OF THE NEW ACT. THE VIEW OF THE ITO IS NOT CORRECT. CLAUSE 40(A) (II) OF THE IT BILL 1961 AS INTRODUCED IN THE PARLIAMENT STOOD AS UNDER: '(II) ANY SUM PAID ON AC COUNT OF ANY CESS RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR P ROFESSION OR ASSESSED AT A PROPORTION OF OR OTHERWISE ON THE BASIS OF ANY SUCH PROFITS OR GAINS'. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE IT WAS DECIDED TO OMIT THE WORD 'CESS' FROM THE CLAUSE. THE EFFECT OF THE OMISSION OF THE WORD 'CES S' IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEARS 1962-63 AND ONWARDS. THE BOARD DESIRE THAT THE CHANGED POSITION MAY PLEASE BE BROUGHT TO THE NOTICE OF ALL THE ITOS SO THAT FURTHER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED' 57. WE ALSO RELY ON THE JUDGMENT OF HON'BLE RAJASTH AN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. VS. JCIT (ITA NO . 52/2018) WHICH AFTER TAKING INTO ACCOUNT AFOREMENTIONED CBDT CIRCULAR HELD THAT SEC. 40(A)(I I) APPLIES ONLY TO TAXES AND NOT TO EDUCATION CESS. RELEVANT EXTRACT OF THE DECISION IS REPRODUCED FOR EASE OF REFERENCE:- '13. ON THE THIRD ISSUE IN APPEAL NO. 52/2018 IN V IEW OF THE CIRCULAR OF CBDT WHERE WORD 'CESS' IS DELETED IN OUR CONSIDERE D OPINION THE TRIBUNAL HAS COMMITTED AN ERROR IN NOT ACCEPTING THE CONTENT ION OF THE ASSESSEE. APART FROM THE SUPREME COURT DECISION REFERRED THAT ASSES SMENT YEAR IS INDEPENDENT AND WORD CESS HAS BEEN RIGHTLY INTERPRE TED BY THE SUPREME COURT THAT THE CESS IS NOT TAX IN THAT VIEW OF THE MATTER WE ARE OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE TRIBU NAL ON ISSUE NO. 3 IS REQUIRED TO BE REVERSED AND THE SAID ISSUE IS ANSWE RED IN FAVOUR OF THE ASSESSEE.' 58. WE NOTE THAT COORDINATE BENCHES OF THIS TRIBUNA L IN THE FOLLOWING CASES HELD THAT EDUCATION CESS SHOULD BE ALLOWED AS AN EXPENSE. THE RELEVANT JUDGMENTS ARE GIVEN BELOW: (I) M/S ITC LIMITED -VS.-ACIT (ITA NO . 685/KOL/2014) - I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 14 'THE ASSESSEE'S ADDITIONAL LAST/ SUBSTANTIVE GROUND AVERS THAT IT IS ENTITLED FOR THE EDUCATIONS SECONDARY HIGHER EDUCATION CESS AS OVERHEAD DEDUCTI ON AMOUNTING TO RS. 423618317 U/S 37 OF THE ACT. WE NOTE THAT HON'BLE RAJASTHAN HIGH COU RT'S DECISION IN DB INCOME TAX APPEAL NO. 52/ KOL/2018 M/S CHAMBAL FERTILIZERS LTD. VS. DCIT DECIDED ON 31.07.2018 TAKES INTO ACCOUNT CBDT CIRCULAR DATED 18.05.1967 FOR HOLDING SUCH CESS(ES) TO BE ALLOWABLE AS DEDUCTION. THEIR LORDSHIPS HOLD THAT SECTION 40A(II) APPLIES ONLY ON TAXES SUCH THAN EARN CESS(ES). WE THEREFORE REJECT THE REVENUE'S CONTENT IONS SUPPORTING THE IMPUGNED DISALLOWANCE. THE ASSESSEE'S INSTANT SUBSTANTIVE GR OUND IS ACCEPTED. THE ASSESSING OFFICER IS DIRECTION TO VERIFY ALL THE RELEVANT FACTS AND ALLO W THE IMPUGNED CESS (ES) AS DEDUCTION U/S 37 OF THE ACT. THE ASSESSEE'S APPEAL I.T.A. NO. 685/KO /2014 IS PARTLY ACCEPTED IN ABOVE TERMS. (II). PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. -VS. - DCIT (ITA NO . 937/KOL/2018)- '37. ADDITIONAL GROUND RAISED BY THE ASSESSEE IN IT A NO.937/KOL/2018 FOR A.Y.201011 READS AS UNDER:'THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE THE AUTHORITIES BELOW ERRED IN NOT ALLOWING DEDUCTION U/S 37(1) OF THE INCOME TAX ACT 1961 ON ACCOUNT OF EDUCATION CESSES PAID BY THE ASSESSEE WHILE ARRIVING AT THE A SSESSED INCOME FOR THE YEAR UNDER APPEAL. ' 38. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO TH E SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR WE FI ND THAT THE ISSUE INVOLVED IN THE PRESENT GROUND OF APPEAL IS NO LONGER RES INTEGRA. THE EDUC ATION CESS BEING NOT 'INCOME TAX' IS ALLOWABLE AS DEDUCTION UNDER SECTION 37 (1) OF THE ACT. FOR THIS WE RELY ON THE JUDGMENT OF THE COORDINATE BENCH OF IT AT KOLKATA IN THE CASE O F ITC LIMITED ITA NO.685/KOL/2014 ORDER DATED 27.11.2018 WHEREIN IT WAS HELD THAT ED UCATION CESS IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THEREFORE WE DIRECT THE ASSESSING OFF ICER TO VERIFY ALL THE RELEVANT FACTS AND ALLOW EDUCATION CESS AS DEDUCTIO N UNDER SECTION 37(1) OF THE ACT. ' (III) TEGA INDUSTRIES -VS.- ACIT (ITA NO. 404/KOL/2017)- 'WE FURTHER TO NOTICE THAT ASSESSEE HAS RAISED AN I DENTICAL ADDITIONAL GROUND IN BOTH CASES SEEKING TO CLAIM EDUCATION CESS ON PROVISION FOR IN COME-TAX AMOUNT OF RS. 71 65 049/- AND RS. 77 76 699 (ASSESSMENT YEAR WISE); RESPECTIVELY AS ALLOWABLE IN COMPUTING TOTAL INCOME OTHER THAN MAT U/S. 115JB OF THE ACT. HON'BLE APEX COURT'S LAND MARK DECISION NATIONAL THERMAL POWER CORPORATION LTD (NTPC) V/S. CIT (1998 ) 229 ITR 383 (SC) AS CONSIDERED BY THIS TRIBUNAL'S SPECIAL BENCH ORDER M/S. ALL CARGO GLOBAL LOGISTICS LTD V/S. DCIT (12) 137 1TD 26 (MUM.) SETTLES THE LAW THAT WE AN VERY WELL ENTERTAIN SUCH A LEGAL QUESTION IN ORDER TO DETERMINE THE CORRECT TAX LIABILITY WHEN ALL THE RE LEVANT FACTS FORM PART OF RECORDS. WE THUS ALLOW ASSESSEE'S ADDITIONAL GROUND TO BE RAISED. 12. COMING TO MERITS OF THE HON'BLE RAJASTHAN HIGH COURT'S DECISION IN CHAMBAL FERTILISERS& CHEMICALS LIMITED V/S. JCIT(D.B INCOME TAX APPEAL N O. 52/2018 DATED 31-07-2018 TAKING NOTE OF CBDT'S CIRCULAR NO. 91/58/66 DATED 18-05-19 65 AS WELL AS CO-ORDINATE BENCH'S ORDER IN ITC LIMITED V/S. ACIT( ITA NO. 685/KOL/2014 DATE D 27- 11- 2018 HOLD THAT SUCH A CLAIM OF EDUCATION CESS IS VERY MUCH ALLOWABLE IN COMPUTING TOTAL INCOME UNDER THE PROVISIONS OF THE ACT.' 59. THE LD DEPARTMENTAL REPRESENTATIVE RELIED ON TH E EARLIER DECISION OF ITAT DATED 27- 02- 2019 WHEREIN THIS TRIBUNAL HAD DISALLOWED THE CLAI M ON THE BASIS OF TWO CONTENTIONS: (I) EDUCATION CESS IS AN ADDITIONAL SURCHARGE AND HENCE FORMS OF INCOME TAX AND (II) DECISION OF I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 15 KALIMATI INVESTMENT COMPANY LTD. -VS.- ITO (ITA NO. 2706 4508/M/2010 2552 2553/M/2011) AND SESA GOA LTD. -VS.- JCIT (ITA NO. 72/PNJ/2012) SQUARELY APPLICABLE AGAINST THE ASSESSEE. 60. WE ACCEPT THE SUBMISSIONS OF THE ASSESSEE CONCU RRING WITH THE DECISIONS OF RAJASTHAN HIGH COURT AND BINDING FAVOURABLE DECISIONS OF JURI SDICTIONAL TRIBUNAL AND THUS WE ALLOW THE CLAIM OF THE EDUCATION CESS. THE AO IS DIRECTED TO ALLOW THE CLAIM OF EDUCATION CESS IN COMPUTING TOTAL INCOME OF THE ASSESSEE COMPANY. THI S ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 25. RESPECTFULLY FOLLOWING THE DECISION OF THIS TRI BUNAL IN THE CASE OF RECKITT BENCKISER (I) PVT. LTD. VS. DCIT (SUPRA) WE DIRECT THE A.O TO ALLOW THE CLAIM IN RESPECT OF THE EDUCATION CESS WHILE COMPUTING THE T OTAL INCOME OF THE ASSESSEE. GROUND NO.2 OF THE C.O OF THE ASSESSEE IS ALLOWED. 26. GROUND NO.3 (OF ADDITIONAL GROUND) IS FOR REFUN D FOR DIVIDEND DISTRIBUTION TAX PAID IN RESPECT OF NON-RESIDENT SHAREHOLDERS. THE S UBMISSION OF THE ASSESSEE IS AS UNDER: DURING THE FINANCIAL YEAR 2010-11 RELEVANT TO THE CAPTIONED AY 2011-12 THE COMPANY HAD DECLARED A FINAL DIVIDEND OF INR 1 80 00 000 AND PA ID A CORRESPONDING DIVIDEND DISTRIBUTION TAX (DDT) OF INR 29 89 575 AT THE RATE OF 16.6%% (I NCLUDING SURCHARGE OF 7.5% AND CESS OF 3% ON THE BASE RATE OF 15% AS PER SECTION 115-O OF THE INCOME TAX ACT 1961). THE SAME WAS DEPOSITED IN THE GOVERNMENT EXCHEQUER ON 06 AUGUST 2010. AS ON THE DATE OF DECLARATION OF DIVIDEND I.E. 27 JULY 2010 THE SHAREHOLDING OF T HE ASSESSEE WAS AS FOLLOWS: SI. NO. NAME OF SHAREHOLDER HOLDING PERCENTAGE CORRESPONDIN G DIVIDEND PAID IN FY 2010-11 (INR) A B C [INR 1 80 00 000*C] (I) TATA STEEL LIMITED INDIA 51% INR 91 80 000 (II) NYK HOLDING EUROPE BV. NETHERLANDS 26% INR 46 80 000 (III) IQ MARTRADE HOLDING UND MANAGEMENT GMBH GERMANY 23% INR 41 40 000 TOTAL 100% INR 1 80 00 000 WHILE CALCULATING THE DDT LIABILITY IN RESPECT OF N ON-RESIDENT SHAREHOLDERS [I.E. SL. (I) AND (I) ABOVE] THE COMPANY HAS INADVERTENTLY CONSIDERED TH E RATE OF TAX AS PER SECTION 115-O OF THE ACT INSTEAD OF THE RATES PRESCRIBED UNDER THE RELE VANT ARTICLES OF THE CORRESPONDING DOUBLE TAX AVOIDANCE AGREEMENTS (DTAAS) ENTERED INTO BET WEEN THE GOVERNMENT OF INDIA AND NETHERLANDS / GERMANY RESPECTIVELY. I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 16 27. SINCE THIS ISSUE HAS NOT BEEN CONSIDERED BY THE AO THEREFORE IN THE LIGHT OF THE AFORESAID SUBMISSION OF THE ASSESSEE WE ARE OF THE VIEW THAT THIS ISSUE SHOULD BE REMANDED TO THE FILE OF THE A.O FOR FACTUAL VERIFIC ATION AND ADJUDICATION OF THE CLAIM AS PER LAW. THE ASSESSEE IS DIRECTED TO FILE BEFORE TH E A.O ALL THE DOCUMENT REGARDING AMOUNT OF DIVIDEND PAID COPY OF AGREEMENT OTHER R ELEVANT DOCUMENTS AS REQUIRED BY THE A.O TO ADJUDICATE THE ISSUE. WE DIRECT THE A.O TO EXAMINE THE RELEVANT DOUBLE TAXATION AVOIDANCE AGREEMENT IN RESPECT TO THE PAYMENT OF DIVIDEND TO THE SHAREHOLDERS AND ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. FOR STATISTICAL PURPOSES THIS ADDITIONAL GROUNDS RAISED BY THE ASSESSEE IN C .O IS ALLOWED. 28. GROUND NO.4 IS IN RESPECT OF DEDUCTION OF EDUCA TION CESS ON DDT PAID WHICH THE ASSESSEE CLAIMS AS ALLOWABLE EXPENDITURE. THE P RAYER OF THE ASSESSEE IS THAT TO ALLOW THE DEDUCTION OF EDUCATION CESS ON DDT PAID I N RESPECT OF THE NON-RESIDENT SHAREHOLDERS SINCE IT WAS NOT HIT BY PROVISION OF S ECTION 40(A)(II) OF THE ACT AND HENCE IT IS AN ALLOWABLE DEDUCTION. THIS ISSUE WE HAVE DE ALT WITH WHILE ADJUDICATING GROUND NO. 2 OF THE CO OF THE ASSESSEE. SO ON THE SAME REA SONING MUTATIS MUTANDIS THIS GROUND IS ALLOWED. 29. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURP OSE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH 2021. SD/- SD/- (J. SUDHARKAR REDDY) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24.03.2021 RS I.T.A. NO.2567/KOL/2019 C.O. 12/KOL/2020 ASSESSMENT YEAR: 2011-12 M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA 17 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT- DCIT CIRCLE-8(1) KOLKATA 2. RESPONDENT M/S TM INTERNATIONAL LOGISTICS LTD. KOLKATA TATA CENTRE 43 J.L. NEHRU ROAD KOLKATA 700071. 3. THE CIT(A)- KOLKATA (SENT THROUGH E-MAIL) 4. CIT- KOLKATA 5. DR KOLKATA BENCHES KOLKATA (SENT THROUGH E-MAI L) //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT KOLKATA BENCHES KOLKATA