Right Tunnelling Co. Ltd., New Delhi v. ADIT, New Delhi

ITA 3400/DEL/2010 | 2006-2007
Pronouncement Date: 04-04-2014 | Result: Dismissed

Appeal Details

RSA Number 340020114 RSA 2010
Assessee PAN AACCR7786D
Bench Delhi
Appeal Number ITA 3400/DEL/2010
Duration Of Justice 3 year(s) 8 month(s) 23 day(s)
Appellant Right Tunnelling Co. Ltd., New Delhi
Respondent ADIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 04-04-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 04-04-2014
Date Of Final Hearing 21-01-2014
Next Hearing Date 21-01-2014
Assessment Year 2006-2007
Appeal Filed On 12-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI U.B.S. BEDI JM AND SHRI J.SUDHAKAR REDDY A.M. ITA NO. 3342/DEL/2010 ASSESSMENT YEAR : 2005-06 ITA NO. 3400/DEL/2010 ASSESSMENT YEAR : 2006-07 ITA NO. 3343/DEL/2010 ASSESSMENT YEAR : 2007-08 ITA NO. 5188/DEL/2011 ASSESSMENT YEAR : 2008-09 RIGHT TUNNELLING CO.LTD. VS. ADIT CIRCLE 2(1) C/O TAS ASSOCIATES CA INTERNATIONAL TAX FLAT NO.4 11/71 PUNJABI BAGH(WES) D S BUILDING IP ESTATE NEW DELHI NEW DELHI PAN: AACCR 7786 D (APPELLANT) (RESPONDENT) APPELLANT BY :- SHRI SUBODH GUPTA & SH.MUKESH AGGARWAL CAS RESPONDENT BY :- SH.SANJEEV SHARMA CIT DR AND SHRI VIVEK KUMAR SR.D.R. O R D E R PER J.SUDHAKAR REDDY AM ALL THESE APPEALS ARE FILED BY THE SSEESSEE AND PE RTAIN TO ASSESSMENT YEARS 2005-06 2006-07 2007-08 AND 2008-09. ITA 3342/DEL/2010 3343/DEL/2010 AND 3400/DEL/2010 ARE DIRECTED AGAI NST A COMMON ORDER PAGE 2 OF 13 PASSED BY LD. CIT(A)-XXIX NEW DELHI DATED 23.03.201 0 FOR THE ASSESSMENT YEARS 2005-06 2006-07 AND 2007-08. ITA 5188/D/ 2011 IS FILED AGAINST THE ORDER PASSED BY THE AO U/S. 144C R.W.S. 143(3) PURS UANT TO AND IN COMPLIANCE OF THE DIRECTIONS ISSUED BY THE DRP II NEW DELH I VIDE ORDER DATED 02.09.2011 U/S. 144C(5) OF THE ACT. AS THE ISSUES A RISING IN ALL THESE APPEALS ARE COMMON FOR THE SAKE OF CONVENIENCE THEY ARE H EARD TOGETHER AND DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. FACTS IN BRIEF: - THE ASSESSEE IS A TAX RESIDENT OF THAILAND. IT I S ENGAGED IN THE EXECUTION OF DKOL DAMN HYDROELECTRIC POWER P ROJECT T NTPC AS A SUB CONTRACTOR OF ITALIAN THAILAND DEVELOPMENT COMPANY LTD THAILAND(HEREINAFTER REFERRED TO AS ITDL). IT HAS FILED ITS RETURNS OF I NCOME REGULARLY. 3. THE FIRST ISSUES THAT ARISE FOR OUR CONSIDERATI ONS FOR THE AY 2005-06 IS ALLOWABILITY OF EXPENSES INCURRED BY THE HO WHICH IS LOCATED IN THAILAND FOR THE INDIAN PROJECT. THE AO DISALLOWED THE AMOUNT ON TH E GROUND THAT THEY ARE INITIAL STARTUP EXPENSES AND HENCE ARE IN THE CAPIT AL FIELD. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING THAT THE AO HAS RECORDED THAT NO SUPPORTING DOCUMENTS WERE SUBMITTED AND THAT THE A SSESSEE HAS NOT FILED ANY DETAILS BEFORE HIM. AGGRIEVED THE ASSESSEE IS IN AP PEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE MR. SUBODH GUPT A FILED A PAPER BOOK CONSISTING OF 144 PAGES AND DREW THE ATTENTION OF T HE BENCH TO PAGES 25 AND 26 AND ALSO TO THE WRITTEN SUBMISSIONS MADE BEFORE THE LD. CIT(A) WHICH IS AT PAGES 1 TO 9 OF THE PAPER BOOK AND ARGUED THAT VIDE LETTER DATED 10.12.2007 COMPLETE NAME WISE AND MONTH WISE LIST OF SALARY OF EXPATRIATE STAFF WAS PAGE 3 OF 13 FURNISHED. HE DISPUTED THE RECORDING MADE BY THE AO AS WELL AS THE LD. CIT(A) THAT THE DETAILS WERE NOT FURNISHED. IN ITS PAPER BOOK THE ASSESSEE ENCLOSED COPIES OF VOUCHERS LEDGER ACCOUNT ETC TO DEMONST RATE HIS CLAIM THAT DETAILS WERE AVAILABLE AND THAT THEY HAVE BEEN FURNISHED TO THE AO. HE FURTHER DREW THE ATTENTION OF THE BENCH TO THE NATURE OF THE EXPENSE S INCURRED AND POINTED OUT THAT THEY WERE REVENUE IN CHARACTER. HE FURTHER SUB MITTED THAT THE EXPENDITURE IN QUESTION WAS DEBITED TO THE RESPECTIVE HEADS OF ACCOUNT AND THUS THEY WERE DULY ACCOUNTED FOR. 5. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT F URNISHED THE REQUIRED INFORMATION. HE REFERRED TO THE T.P. REPORT IN FORM 3 CEB AND ARGUED THAT THE EXPENSES WERE INCURRED IN THAILAND AND THE NEXUS WI TH THE INDIAN PROJECT IS NOT PROVED. 6. AFTER HEARING RIVAL CONTENTIONS AND PERUSING THE PAPERS ON RECORD WE FIND THAT THE ASSESSEE HAS FURNISHED A DETAILED REPLY TO THE AO AS REGARDS THE EXPENSES IN QUESTION. A PERUSAL OF THE NATURE OF E XPENDITURE CLEARLY DEMONSTRATES THESE ARE IN THE REVENUE FIELD. THE AO HAS DISALLOWED THE EXPENSES IN QUESTION BY OBSERVING AS UNDER:- 4. HEAD OFFICE EXPENSES OF RS.13 74 033/-:- THES E EXPENSES ARE SHOWN IN FORM NO.3CEB. AND THE ASSESSEE HAS CLAIMED THAT THE EXPENSES OF RS.13 74 033/- WERE INCURRED BY THE HO OF THE ASSES SEE IN THAILAND IN RELATION TO THE OPERATIONS IN INDIA ON ACCOUNT OF SALARIES WELFARE EXPENSES AND ON TRAVELLING ETC. THESE EXPENSES ARE MAINLY INITIAL PROJECT START UP EXPENSES FOR MOBILIZING OF MAN POWER ETC. THESE EXPENSES HAVE BEEN CLAIMED AS EXPENSES IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR AS THESE A RE INCURRED DIRECTLY IN RELATION TO PROJECT EXECUTION IN INDIA. IF THESE WERE THE S TART UP EXPENSES THESE SHOULD PAGE 4 OF 13 HAVE BEEN CAPITALIZED IN OTHER WISE ALSO SUPPORTIN G DOCUMENTS ARE NOT SUBMITTED THEREFORE DISALLOWED AND ADDED TO THE IN COME OF THE ASSESSEE. 6.1. THE ARGUMENTS OF THE LD. DR THAT THE ASSESSEE HAS NOT PROVED NEXUS OF THE EXPENDITURE IN QUESTION TO THE PROJECT IN INDIA IS NOT THE GROUND ON WHICH THE ASSESSING OFFICER MADE THE DISALLOWANCE. THIS IS N OT THE GROUND OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS) ALSO. HENC E THE ARGUMENT CANNOT BE ENTERTAINED AT THIS STAGE. THE ASSESSING OFFICER A S WELL AS THE LD.CIT(APPEALS) HAVE NOT STATED THAT THE EXPENDITURE CLAIMED HAVE N O NEXUS WITH THE PROJECT IN INDIA. AS THE PHOTOCOPY OF ALL THE VOUCHERS HAVE B EEN FURNISHED BEFORE THE BENCH IN THE FORM OF A PAPER BOOK AND AS IT HAS BEEN BRO UGHT TO OUR NOTICE THE LETTER ADDRESSED BY THE ASSESSEE WHEREIN THE REQUIRED DE TAILS WERE FILED WITH THE ASSESSING OFFICE UNDER THE CIRCUMSTANCES IN THE I NTEREST OF JUSTICE WE SET ASIDE THE MATTER TO THE FILE OF THE AO FOR VERIFICATION O F THE DETAILS. AS REGARDS THE ISSUE AS TO WHETHER THE EXPENDITURE IS IN THE REVENUE FIL ED OR IN THE CAPITAL FIELD WE ARE OF THE VIEW THAT THE EXPENDITURE IS PROJECT EXPEN DITURE AND HENCE THESE ARE REVENUE IN NATURE. THE EXPENDITURE WAS CLAIMED AS INCURRED IN CONNECTION WITH A CONTRACT. IN THE RESULT THIS GROUND OF THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES. 7. GROUND NUMBER 2 IS A COMMON GROUND FOR ALL THE F OUR AY`S AND PERTAIN TO DISALLOWANCE U/S. 40(A)(I)(A) FOR NON COMPLIANCE OF SECTION 195. THE ASSESSEE HAS CLAIMED EXPENDITURE ON ACCOUNT OF MACHINERY HIRE CH ARGES FOR ALL THE YEARS. IT HAD HIRED THE SAID MACHINERY AND PAID HIRE CHARGES T O ITALIAN THAILAND DEVELOPMENT CO.LTD. (ITDL FOR SHORT). TAX WAS NOT DEDUCTED AT SOURCE AS PER THE PROVISIONS OF PAGE 5 OF 13 THE ACT. THE ASSESSING OFFICER INVOKED THE PROVISI ONS OF S.40(A)(I) OF THE ACT AS NO DEDUCTION OF TAX WAS MADE U/S 195 AND THE CLAIM FOR MACHINERY HIRE CHARGES WAS DISALLOWED. AGGRIEVED THE ASSESSEE CARRIED TH E MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY UPHELD THE FINDING OF THE ASSES SING OFFICER. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 7.1. THE SUBMISSIONS OF THE ASSESSEE WERE THE SAME AS MADE BEFORE THE FIRST APPELLATE AUTHORITY. FOR THE PURPOSE OF READY REFE RENCE WE EXTRACT THE SAME. 3. IT IS WORTH NOTICING THE FOLLOWING CLAUSES IN THE CONTRACT: 1.2 IT IS MUTUALLY AGREED THAT THE MAIN CONTRACTOR MAY IN HIS DISCRETION INSTRUCT A VARIATION ORDER (INCLUDING INSTRUCTION TO OMIT TH E WORK). NO VARIATION INSTRUCTED BY THE MAIN CONTRACTOR SHALL VITIATE THE CONTRACT OR RELIEVE THE SUB CONTRACTOR FROM ANY OF HIS OTHER LIABILITIES OR OBL IGATIONS UNDER THE SUB CONTRACT BUT THE VALUE OF SUCH VARIATION SHALL BE TAKEN INTO ACCOUNT BY THE MAIN CONTRACTOR. THE VALUE OF THE VARIATION SHALL BE AS CERTAINED AS APPROPRIATE BY THE MAIN CONTRACTOR AFTER CONSULTATION WITH THE SUB CON TRACTOR WITH.. 3.1. SUBJECT TO ALL TERMS AND CONDITIONS UNDER THI S SUB CONTRACT AGREEMENT THE SUB CONTRACTOR SHALL EFFICIENTLY AND FAITHFULLY PER FORM ALL THE SUB CONTRACTING WORKS TO FURNISH ALL NECESSARY DRILLING EQUIPMENT TOGETHER WITH ESSENTIAL SUPPORTING EQUIPMENTS AND MATERIALS FOR THE EXECUTI ON OF EXCAVATION WORKS. 3.3 THE MAIN CONTRACTOR SHALL PROCURE ON BEHALF OF THE CONTRACTOR 5 UNITS OF HYDRAULIC CRAWLER DRILL FOR CONTRACTOR'S WORKS UNDE R TERMS ACCEPTABLE TO THE MAIN CONTRACTOR PROVIDED HOWEVER THAT THE CONTRACTOR SH ALL RE-IMBURSE THE COSTS THEREOF IN THE AMOUNT OF BAHT 43 MILLION TO THE MAI N CONTRACTOR BY MONTHLY INSTALMENTS FROM MONTH 5 TO NO 32 AS SPECIFIED .... 4.3 THE MAIN CONTRACTOR AGREES TO PAY WHEN DUE (IN ADVANCE) FOR THE COST OF MOBILIZATION AND DEMOBILIZATION IN INDIA FROM MUMB AI PORT TO JOB SITE AND JOB SITE TO SEA PORT FOR ALL MACHINES TOOLS AND MATERI AL OWNED BY AND! OR IN THE CONTRACTOR'S RESPONSIBILITY AND THE EXPENSES SHALL BE DEDUCTED IN STAGES AT ORIGINAL COST FROM CONTRACTOR'S MONTHLY PAYMENTS. 4.7 THE MAIN CONTRACTOR AGREES TO PROVIDE ELECTRICI TY LIGHTING AND TRANSFORMER AT WORKING SITES FREE OF COST FOR CONTRACTOR PAGE 6 OF 13 4.9 THE MAIN CONTRACTOR AGREES TO PROVIDE ALL CONST RUCTION AND CONSUMABLE MATERIALS FOR THE CONTRACTOR AND THE EXPENSES THERE OF SHALL BE DEDUCTED IN STAGES ON A MONTHLY BASIS FROM THE CONTRACTOR'S MON THLY PAYMENTS AT ORIGINAL COST 4 FROM THE READING OF ABOVE CLAUSES AS PART OF TH E CONTRACT CONDITIONS THE PROVISION OF DRILLING WOLF MACHINES WERE TO BE PROV IDED BY THE MAIN CONTRACTOR ON SUCH TERMS AND CONDITIONS AS IT MAY CONSIDER APP ROPRIATE IN -HIS DISCRETION. TAKING THE FAILURE OF THE CONDITIONS OF THE CONTRAC T THE ITO (MAIN CONTRACTOR) PROVIDED ITS OWN MACHINE TO CONTINUE THE WORK ON CH ARGEABLE BASIS AND WHICH WERE ADJUSTED AGAINST THE MONTHLY PAYMENTS DUES TO THE CONTRACTOR BY CALLING IT AS 'HIRE CHARGES'. 5 THE AFORESAID HIRE CHARGES FOR THE MACHINES OBTA INED FROM ITO WERE NEVER INTENDED TO BE PAID NOR PAID AS SAME WERE TO BE ADJUSTED AGAINST THE CONTRACT DUES OF THE ASSESSEE AND WERE ONLY A VARIA TION IN CONTRACT WHICH THE VALUE HAS BEEN DETERMINED AS HIRE CHARGES. THEREFOR E ASSESSEE TOOK THE VIEW THAT IT IS A PERSON 'PERSON RESPONSIBLE FOR PAYING ' FOR TAX DEDUCTION U/S 195. 7.2. HE FURTHER SUBMITTED THAT S.195(1) IS NOT ATTRACTED FOR THE REASON THAT THE ASSESSEE WAS NOT RESPONSIBLE TO PAY HIRE CHARGES AS THE ARRANGEMENT WAS SUCH THAT ILD RECOVERED THE SAME FROM CONTRACT DUES. HE SUBMITTED THAT THE TERM PAYMENT CANNOT BE EQUATED WITH ADJUSTMENT OF ACC OUNTS AND IT SHALL BE POSITIVE MONEY ARE EQUIVALENT OF DISCHARGED LIABILITY. HE C LAIMED THAT LANGUAGE AND INTENT OF THE ACT DOES NOT TAKE INTO ACCOUNT SITUATION WH ERE NO ACTUAL PAYMENT IS STIPULATED BUT ONLY ADJUSTMENT ON ACCOUNT WAS MEANT IN THE DIRECTION OF VARIATION IN CONTRACT AS ONE OF THE CONDITIONS. HE RELIED ON THE JUDGEMENT OF HONBLE AP HIGH COURT IN THE CASE OF KANCHANGNGA SEA FOODS 2 65 ITR 644(AP) WHEREIN SHARING OF CATCH OF FISH WAS HELD AS COVERED BY S.1 95 UNDER THE CLAUSE OR IN OTHER MODE AND SUBMITTED THAT THIS JUDGEMENT DOES NOT APP LY TO THE FACTS OF THIS CASE. HE RELIED ON THE JUDGEMENT OF HONBLE DELHI HIGH CO URT IN THE CASE OF CIT VS. PAGE 7 OF 13 CAREER LAUNCHER INDIA LTD. ITA 939/2000 DT. 19 TH APRIL 2012 FOR THE PROPOSITION THAT THE ENTIRE AGREEMENT ENTERED INTO BETWEEN THE PARTIES HAS TO BE SEEN AS A WHOLE AND THAT ON A HOLISTIC APPRAISAL OF THE AGREE MENT ONE WOULD COME TO A CONCLUSION THAT IN CASE OF THE ASSESSEE THERE WAS NO PAYMENT OF HIRE CHARGES. HE ALSO RELIED ON THE DECISION OF HONBLE DELHI HIGH C OURT IN CIT VS. NIIT LTD. FOR THE PROPOSITION THAT WHEN THE RELATION BETWEEN THE PART IES IS NOT OF A LESSOR AND LESSEE S.194 I DOES NOT APPLY. 7.3. THE LD.DR ON THE OTHER HAND OPPOSED THE CONTEN TIONS OF THE ASSESSE AND SUBMITTED THAT CERTAIN MACHINERY WAS GIVEN TO THE ASSESSEE ON HIRE AND THE ASSESSEE HAD INCURRED EXPENDITURE ON ACCOUNT OF HIR E CHARGES. HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED THE SAME AS HIRE CHARGES IN ITS BOOKS OF ACCOUNTS AND UNDER THE FACTS AND CIRCUMSTANCES S.195 IS APPLICA BLE AS THE PAYMENT IS MADE TO A NON-RESIDENT. AS THE ASSESSEE HAS NOT DEDUCTED T AX AT SOURCE S.40(A)(I) WAS RIGHTLY INVOKED BY THE A.O. HE TOOK THIS BENCH TO PAGES 5 TO 8 OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)S ORDER FOR THE ASSESSMENT YEAR 2005-06 2006-07 2007-08 AT PARA 6 TO 6.6 AND RELIED ON TH E SAME. HE DISTINGUISHED THE CASE LAWS CITED BY THE ASSESSEE. 7.4. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT THE UNDISPUTED FACT IS THAT ITALIAN THAI DEVELOPMENT CO.LTD. (ITDL) IS A NON R ESIDENT COMPANY AND THAT IT HAS PROVIDED CERTAIN MACHINERY ON HIRE TO THE ASSESS EE COMPANY ON CHARGEABLE BASIS. ILD HAS CHARGED HIRE FOR THE MACHINERY PROVIDED T O THE ASSESSEE AND RAISED BILLS ON THE ASSESSEE TOWARDS HIRE CHARGES. COPIES OF IN VOICES RAISED HAVE BEEN PLACED IN THE PAPER BOOK. AT PAGE 32 OF THE PAPER BOOK FOR THE ASSESSMENT YEAR 2006-07 THE INVOICE RAISED BY ITDL ON THE ASSESSEE COMPANY BEARS THE FOLLOWING DESCRIPTION PAGE 8 OF 13 EQUIPMENT RENTAL (OCTOBER 2005). FROM THIS DESCRIPTION IT IS CLEAR THAT THE BILL WAS FOR EQUIPMENT HIRE. THE ASSESSEE RELIES ON CLAUSES 1.2 3.1 3.3 4.3 4.7 AND 4.9 OF THE CONTRACT ENTERED BY IT WITH ITDL. A PERUSAL OF THESE CLAUSES DOES NOT IN ANY WAY SUPPORT THE ARGUMENTS OF THE ASSESSEE THAT THESE PA YMENTS WERE NOT IN SUBSTANCE RENTAL PAYMENTS MADE BY THE ASSESSEE TO ITDL. JUST BECAUSE CERTAIN OBLIGATIONS TERMS & CONDITIONS ETC. HAVE BEEN AGREED TO BETWEE N THE PARTIES IT DOES NOT LEAD TO A CONCLUSION THAT THERE IS NO HIRER AND HIREE RELAT IONSHIP. THE FACT REMAINS THAT THE ASSESSEE BILLS ITDL FOR THE TOTAL CONTRACT WORK D ONE AND ITDL ALSO BILLS THE ASSESSEE FOR HIRE CHARGES PAYABLE. METHOD OF SETTLEMENTS OF ACCOUNTS IS OF NO CONSEQUENCE. EVEN A CREDIT ENTRY ATTRACTS PROVISIONS OF SEC.195. 7.5. A DECISION IN THE CASE OF CAREER LAUNCHER IND IA LTD. (SUPRA) RELIED UPON BY THE ASSESSE LAYS DOWN A GENERAL PROPOSITION OF L AW THAT A HOLISTIC VIEW HAS TO BE TAKEN OF THE AGREEMENT BETWEEN THE PARTIES. THERE CAN BE NO DISPUTE ON THIS PROPOSITION. IN THE DECISION IN THE CASE OF NIIT L TD. RELIED UPON BY THE LD.COUNSEL DOES NOT HELP THE CASE OF THE ASSESSEE FOR THE R EASON THAT THE HONBLE HIGH COURT HAS ON THE FACTS OF THAT CASE COME TO A CONCLUSIO N THAT THE AGREEMENT WAS A FRANCHISEE AGREEMENT AND THERE WAS NO RELATIONSHIP OF LESSOR AND LESSEE BETWEEN THE PARTIES. ON THE FACTS OF THIS CASE NO SUCH FAC TUAL CONCLUSION CAN BE DRAWN. 7.6. THE LD.COMMISSIONER OF INCOME TAX (APPEALS) AT PARA 6.6 HELD AS FOLLOWS. 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE APPELLANT AND THE FACTS OF THE CASE. THE MAIN CONTENTION OF THE A PPELLANT REGARDING THESE EXPENSES IS THAT NO PAYMENT WAS MADE IT TO THE PAYE E EITHER BY CASH OR BY CHEQUE OR BY ANY OTHER MODE. ALL THAT HAS BEEN DONE IS THAT ITD HAD ADJUSTED THE HIRE CHARGES FROM THE DUES TO THE APPELLANT ON ACCOUNT OF CONTRACT WORK DONE BY THE APPELLANT FOR LTD. THUS ONLY A BOO K ENTRY WAS MADE AND NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF HIRE CHARGE S. THIS CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE. SECTION 195 OF THE AC T STATES AS UNDER:- PAGE 9 OF 13 ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT . NOT BEING A COMPANY OR TO A FOREIGN COMPANY ANY INTEREST OR ANY OTHER SUM C HARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CH EQUE OR DRAFT OR BY WRY OTHER MODE. WHICHEVER IS EARLIER DEDUCT INCOME TAX THERE ON AT THE RATES IN FORCE; 6.1 ADMITTEDLY THE PAYEE IS A NON-RESIDENT AND THE PAYMENTS MADE TO THE PAYEE WERE CHARGEABLE TO TAX. FROM A PERUSAL OF THE ABOVE PROVISIONS OF SECTION 195 IT IS SEEN THAT THE OBLIGATION TO DEDUCT INCOME TAX IS CAST ON A PERSON AT EARLIER OF THE TWO POINTS IN TIME; AT THE TIME OF CREDIT OF SU CH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF. THUS IF TH E CREDIT TO THE PAYEE'S ACCOUNT HAPPENS EARLIER THAN THE ACTUAL PAYMENT THE N TAX NEEDS TO BE DEDUCTED AT THAT TIME. 6.2 IN THE PRESENT CASE THE APPELLANT WAS TO RECEIV E ITS CONTRACT DUES FOR THE WORK DONE FROM THE MAIN CONTRACTOR (LTD) ON THE BAS IS OF A MONTHLY STATEMENT GIVING DETAILS OF ALL WORK DONE DURING THE MONTH (A RTICLE 6 OF THE CONTRACT - PAYMENT STATEMENT). THUS EVERY MONTH THE APPELLANT WAS SUBMITTING A MONTHLY STATEMENT TO ITD FOR THE CONTRACT DUES AND GETTING PAYMENTS FOR THE SAME AFTER ADJUSTMENT OF HIRE CHARGES. THUS EVERY MONTH THE AP PELLANT WAS CREDITING HIRE CHARGES TO THE PAYEE'S ACCOUNT. ADMITTEDLY SUCH CRE DITS TO THE PAYEE'S ACCOUNT HAVE MADE ON ACCOUNT OF HIRE CHARGES WHICH FORMS TH E BASIS OF THE APPELLANT'S CLAIM OF SUCH EXPENSES IN THE P&L ACCOUNT AND IN TH E RETURN OF INCOME. IN TERMS OF 'PAYMENT THEREOF' ALSO THE ADJUSTMENT OF THE APP ELLANT'S DUES WITH HIRE CHARGES BY THE PAYEE AT REGULAR INTERVALS AMOUNTS T O 'CONSTRUCTIVE PAYMENT'. HOWEVER THE APPELLANT HAS FAILED TO DEDUCT TAX FRO M THESE PAYMENTS AT THE TIME OF CREDIT TO THE PAYEE'S ACCOUNT OR AT THE TIME OF CONSTRUCTIVE PAYMENT IN TERMS OF PROVISIONS OF SECTION 195. 6.3 THE APPELLANT HAS CONTENDED THAT THE TRUE NATUR E OF THE TRANSACTION AND NOT MERE CLASSIFICATION OF HIRE CHARGES IN ITS BOOKS OF ACCOUNTS AS SUCH SHOULD BE THE BASIS OF DETERMINING ITS LIABILITY. THE FACTS OF TH E CASE ARE THAT THE APPELLANT WAS PROVIDED CERTAIN MACHINES BY ITD ON CHARGEABLE BASI S. HIRE CHARGES ON THESE MACHINES WERE ADJUSTED BY ITD FROM THE MONTHLY CONT RACT PAYMENTS TO BE MADE TO THE APPELLANT. THE APPELLANT HAS ACCOUNTED FOR T HESE CHARGES IN ITS BOOKS OF ACCOUNT AS HIRE CHARGES AND ALSO CLAIMED THESE PAYM ENTS AS HIRE CHARGES IN ITS RETURNS OF INCOME. THUS THERE IS HARDLY ANY DOUBT ABOUT THE TRUE NATURE OF THE PAGE 10 OF 13 TRANSACTION. THE CONTENTION OF THE APPELLANT THAT THESE CHARGES ;ARE ON ACCOUNT OF VARIATION IN THE TERMS OF THE CONTRACT IS IRREL EVANT FROM THE POINT OF VIEW OF SECTION 195 BECAUSE AS PER THE SECTION TAX IS TO BE DEDUCTED FROM 'ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT'. T HERE IS NO DOUBT ABOUT THE FACT THAT SUCH SUMS ARE CHARGEABLE TO TAX IN THE HA NDS OF THE PAYEE UNDER THE PROVISIONS OF THE ACT. IN FACT THE APPELLANT ITSELF HAS STATED THAT THE ITD HAS DULY SHOWN THESE PAYMENTS IN ITS RETURN OF INCOME AND TH ERE IS NO PREJUDICE TO REVENUE ON THIS ACCOUNT. 6.4 THE APPELLANT'S RELIANCE ON SECTION 191 OF THE ACT IS MISPLACED. SECTION 191 STATES THAT 'INCOME TAX SHALL BE PAYABLE BY THE ASS ESSE DIRECT' ON ITS INCOME IN CASES WHERE PROVISION HAS NOT BEEN MADE FOR DEDUCTI ON OF TAX UNDER CHAPTER VII OR WHERE PROVISION FOR DEDUCTION IS THERE BUT TAX H AS NOT BEEN DEDUCTED IN ACCORDANCE WITH THOSE PROVISIONS. THIS SECTION DOES NOT ABSOLVE THE PAYER OF HIS OBLIGATION TO DEDUCT TAX IF THE SAME IS DEDUCTIBLE IN ACCORDANCE WITH THE PROVISIONS OF THE CHAPTER. OBLIGATIONS CAST ON THE PAYER AND THE PAYEE UNDER THE PROVISIONS OF THE ACT ARE DIFFERENT IN NATURE. SECTION 191 OF THE ACT IS AN ADDITIONAL SAFETY NET TO TAKE CARE OF SITUATIONS IN WHICH TAXES MAY NOT BE COLLECTED THROUGH IDS. HOWEVER IN THOSE CASES WHER E THERE ARE EXPRESS PROVISIONS FOR TDS IT IS THE OBLIGATION OF THE PAY ER TO FULFILL THOSE OBLIGATIONS. THUS SECTION 191 IS APPLICABLE TO PAYEES IN CERTAIN SITUATIONS BUT DOES NOT HELP THE APPELLANT IN ANY WAY. 6.5 THE NEXT CONTENTION OF THE APPELLANT IS THAT PR INCIPALS OF NATURAL JUSTICE WERE VIOLATED AS THE PROPOSED ACTION BY THE AO WAS NEVER SPELT OUT DURING THE COURSE OF ASSESSMENT PROCEEDINGS SO THAT THE APPELLANT COU LD HAVE FILED DETAILED AND REASONED REPLIES DURING THE COURSE OF ASSESSMENT PR OCEEDINGS ITSELF. ON A PERUSAL OF THE APPELLANT'S REPLIES FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT IS SEEN THAT THE APPELLANT WAS SPECI FICALLY ASKED ABOUT TAX DEDUCTED AT SOURCE FROM THE PAYMENTS MADE TO THE NO N-RESIDENT COMPANY. THE APPELLANT FURNISHED ITS REPLIES VIDE LETTER DATED 2 9.11.2007 AND 14.12.2007 TO THESE SPECIFIC QUERIES AND THEREFORE THE APPELLANT PLEA ABOUT VIOLATION OF PRINCIPLES OF NATURAL JUSTICE IS WITHOUT ANY BASIS . AN EXTRACT OF THE APPELLANT'S REPLIES IN THIS REGARD FROM THE ABOVE MENTIONED LET TERS IS REPRODUCED BELOW- LETTER DATED 29.11.2007 PAGE 3- 'THE ASSESSEE HAS NOT RECEIVED/ NOR OBTAINED ANY ORDER U/S 195(2) FOR THE AFORE SAID ASSESSMENT YEAR. ' PAGE 11 OF 13 LETTER DATED 14.12.2007 PAGE 2 - 'NO TAX HAS BEEN DEDUCTED FROM THESE CHARGES AS THE MACHINES WERE TAKEN ON HIRE WITHOUT OPERATOR AND ALL THE RUNNING COST HAS BEEN BORNE BY THE ASSESSEE COMPANY. IN VI EW OF ABOVE NO TDS IS REQUIRED TO BE DEDUCTED ON THE ABOVE. IT IS ALSO S UBMITTED THAT ;AS PER PROVISIONS OF THE ACT PREVALENT DURING THE RELEVANT YEAR NO TAX ;WAS REQUIRED TO BE DEDUCTED ON HIRING OF MACHINES WHICH NOW STANDS AMENDED W.E.F. 13.7.2006 U/S 194 I. 6.6. KEEPING IN VIEW THE ABOVE DISCUSSION IT IS HEL D THAT THE APPELLANT HAS FAILED IN ITS OBLIGATION TO DEDUCT TAX U/S 195 OF T HE ACT ON PAYMENTS MADE BY IT TO ITD ON ACCOUNT OF HIRE CHARGES FOR MACHINERY. T HE ASSESSING OFFICER HAS THEREFORE RIGHTLY DISALLOWED SUCH HIRE CHARGES FOR THE YEARS UNDER CONSIDERATION IN TERMS OF THE PROVISIONS OF SECTION 40(A)(I). WE DO NOT SEE ANY INFIRMITY IN THESE FINDINGS. IN VIEW OF THE ABOVE DISCUSSION WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY A ND DISMISS THIS GROUND OF THE ASSESSEE. 8. FOR THE ASSESSMENT YEAR 2008-09 THERE ARE OTHER GROUNDS OF APPEAL. THE FIRST GROUND IS ALLOWABILITY OF LEGAL EXPENSES PAID IN THAILAND IN RELATION TO ARBITRATION PROCEEDINGS HELD IN THAILAND AND SECOND IS CLAIM FOR DEDUCTION U/S 40(A)(III). AS REGARDS LEGAL EXPENSES PAID IN THAILAND WE FIND TH AT THE ASSESSEE SUBMITTED BEFORE THE DRP THAT THE LAW FIRM TO WHOM THE PAYMENT WAS MADE IN THAILAND IS (A) A RESIDENT OF THAILAND; (B) DOES NOT HAVE ANY OFFICE OR AGENT OR BRANCH IN INDIA (C ) NONE OF THE PARTNERS OR EMPLOYEES ARE PRESENT IN IN DIA DURING ANY OF THE ARBITRATION PROCEEDINGS (D) THAT THE ENTIRE ARBITRATION PROCEE DS WERE HELD IN THAILAND IN TERMS OF THE AGREEMENT BETWEEN THE PARTIES (E) THE PAYME NT TO THE LAW FIRM WAS MADE BY HEAD OFFICE IN THAILAND (E) THE SERVICES WERE P ERFORMED IN THAILAND. 9. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT TH E DRP HAS NOT APPLIED ITS MIND TO THE FACTS OF THIS CASE OR CONSIDERED THE A RGUMENTS RAISED BY THE ASSESSEE. PAGE 12 OF 13 IT DISMISSED THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT THE FACTS ARE PARA MATERIA TO HIRE CHARGES PAID ON MACHINERY WHICH WA S CONSIDERED BY US IN GROUND NO.2 ABOVE. THERE IS NO COMPARISON BETWEEN THE TW O ISSUES. AS ON FACTS THE LD.D.R. COULD NOT CONTROVERT THE SUBMISSIONS OF THE ASSESSEE AND AS THE SERVICES WERE RENDERED OUTSIDE INDIA AND THE PAYMENT WAS MAD E OUTSIDE INDIA BY THE HEAD OFFICE OF THE COMPANY IN OUR VIEW S.195 IS NOT ATT RACTED. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SRI CHIRAG AND BHAKTA IN ITA 1073/2012 HAS HELD THAT WHEN SERVICES WERE NOT RENDERED IN INDIA THE AMOUN T SHALL NOT BE TAXABLE AND CONSEQUENTLY S.195 IS NOT ATTRACTED AND CONSEQUENT LY THE DISALLOWANCE MADE U/S 40(A)(IA) IS BAD IN LAW. RESPECTFULLY FOLLOWING TH E SAME WE ALLOW THIS GROUND OF THE ASSESSEE. 10. THE LAST GROUND RELATES TO THE CLAIM OF ALLOWA NCE OF RS.2 79 333/- MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDING S. IN THE RETURN OF INCOME THE ASSESSEE MADE A SUO MOTO DISALLOWANCE U/S 40A (III) . AS THE ASSESSEE HAS NOT FILED A REVISED RETURN OF INCOME THE ASSESSING OFFICER A PPLIED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GEOTZ INDIA LTD. VS. C IT 284 ITR 323 AND DISALLOWED THE CLAIMS. 10.1. ON HEARING RIVAL CONTENTIONS WE FIND NO INFIR MITY IN THE ORDER OF THE ASSESSING OFFICER PASSED IN PURSUANCE TO THE DIRECT IONS OF THE DRP. IN THE RESULT THIS GROUND OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT APPEAL FOR THE ASSESSMENT YEAR 20 05-06 AND 2008-09 IS ALLOWED IN PART AND APPEAL FOR THE ASSESSMENT YEAR 2006-07 2 007-08 ARE DISMISSED. PAGE 13 OF 13 ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH APRIL 2014. SD/- SD/- (U.B.S.BEDI) ( J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCO UNTANT MEMBER DATED: THE 04 TH APRIL 2014 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR