M/s Reliance Energy Ltd.,, Hyderabad v. DCIT, Hyderabad

ITA 611/HYD/2007 | 2002-2003
Pronouncement Date: 09-04-2010 | Result: Dismissed

Appeal Details

RSA Number 61122514 RSA 2007
Assessee PAN AACCS8131P
Bench Hyderabad
Appeal Number ITA 611/HYD/2007
Duration Of Justice 2 year(s) 10 month(s) 25 day(s)
Appellant M/s Reliance Energy Ltd.,, Hyderabad
Respondent DCIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 09-04-2010
Date Of Final Hearing 29-03-2010
Next Hearing Date 29-03-2010
Assessment Year 2002-2003
Appeal Filed On 14-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.611/HYD/2007 ASST. YEAR 2002-03 M/S RELIANCE ENERGY LTD. HYDERABAD. (PAN AACCS 8131 P) VS THE DY. CIT CIRCLE 14(4) HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K. VASANT KUMAR RESPONDENT BY: SHRI E. NAGENDRA PRASAD O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A)-II HYDERABAD DATED 14.2.20 07 AND PERTAINS TO THE ASSESSMENT YEAR 2002-03. 2. ORIGINALLY ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A SSESSING OFFICER IN TREATING THE ASSESSEE AS ASSESSEE IN DEFAULT IN RES PECT OF NON PAYMENT OF TAX U/S 195 ON PAYMENT TO M/S FIELDSTONE (P) CAP ITAL GROUP LTD. (FIELDSTONE). 2. THE CIT(A) IS ERRONEOUS BOTH UNDER FACTS AND IN LAW AND THAT THE ORDER U/S 201 (1) R.W.S. SECTION 201(1A) OF THE ACT OUGHT TO BE QUASHED. 3. THE CIT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 10(6A) ARE NOT APPLICABLE UNDER THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE CASE AND THEREBY UPHOLDING THE ORDER U/S 201 (1) OF THE ACT. THE ASSESSEE SUBMITS THAT THE PROVISIONS OF SEC.10(6A) ARE APPLI CABLE TO THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE CASE AND THERE IS NO DEFAULT IN DEDUCTION OF TAX U/S 195 R.W.S. 10(6A) OF THE ACT. ASSESSEE THEREFORE SUBMITS THAT THE RODER U/S 201 (1) R.W.S. 201(1A) O UGHT TO BE QUASHED. 4. THE CIT(A) FAILED TO APPRECIATE THAT UNDER THE PROV ISIONS OF AGREEMENT OF AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND U NITED KINGDOM 2 2 (UK) (TREATY) THE PAYMENT TO FIELDSTONE WAS NOT LIA BLE TO TAX AS FEES FOR TECHNICAL SERVICE OR AS BUSINESS PROFITS AND THEREFORE THE PROVISIONS OF SECTION 195 WERE NOT APPLICABLE. 5. THE ASSESSEE SUBMITS THAT UNDER THE TREATY BETWEEN INDIA & UK THE PAYMENT TO FIELDSTONE IS NOT LIABLE TO TAX IN INDIA AND THEREFORE PROVISION OF SECTION 195 WERE NOT APPLICABLE AND OR DER U/S 201(1) W.R.S. 201(1A) IS ILLEGAL AND BAD IN LAW AND THE SA ME SHOULD BE QUASHED WITH A DIRECTION TO REFUND THE TAX ALREADY WITHHELD AND PAID. 3. THE ABOVE GROUNDS WERE NOT PRESSED AT THE TIME OF HEARING; ACCORDINGLY THESE GROUNDS ARE DISMISSED AS NOT PRESSED. ALT ERNATIVELY THE ASSESSEE HAS FILED THE FOLLOWING ADDITIONAL GROUNDS A ND PLEADED THAT THE ASSESSEE HAS INADVERTENTLY FAILED TO RAISE THESE GROUN DS AT THE TIME OF FILING APPEAL THOUGH THESE GROUNDS ARE EMANATED FROM THE ORDER OF THE CIT(A) AND PLEADED THAT THESE ADDITIONAL GROUNDS TO BE CONSIDERED FOR ADJUDICATION. 1. THE CIT(A) ERRED IN HOLDING THAT THE POWER PLANT I NTENDED TO BE SET UP BY THE ASSESSEE DOES NOT FALL WITHIN THE AUTOMATIC APPROVAL LIST OF THE INDUSTRIAL POLICE AND THEREBY HOLDING THAT THE PROV ISIONS OF SEC. 10(6A) DOES NOT APPLY. 2. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT WHAT THE ASSESSEE COMPANY ESTABLISHED IS NOT JUST GAS/HYDRO/STEAM TUR BINES TO CONSIDER THE MW OF BELOW 60 BUT ELECTRICAL EQUIPMENT FOR WHI CH NO CAPACITY RESTRICTION IS IMPOSED IN THE INDUSTRIAL POLICY AND THEREBY ERRED IN HOLDING THAT THE CASE OF ASSESSEE COMPANY DOES NOT FALL U/S 10 (6A). 4. THE DR STRONGLY OPPOSED RAISING OF THE ADDITIONAL GROUNDS. ALTERNATIVELY HE SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF CIT(A) IN THE LIGHT OF THE JUDGMENT OF HONBLE MADY A PRADESH HIGH COURT IN THE CASE OF CIT VS. TOLLARAM HASSOMAL (298 ITR 22) (M P HC) WHEREIN IT WAS HELD : THAT THE TRIBUNAL HAVING PERMITTED THE ASSESSEE T O RAISE FOUR ADDITIONAL GROUNDS TREATING THEM TO BE LEGAL GROUND S IN APPEAL FOR THE FIRST TIME SHOULD HAVE SET ASIDE TO THE CIT(A) AND REMAN DED THE CASE TO THE CIT(A) FOR DECIDING THE APPEAL AFRESH ON ALL THE IS SUES INCLUDING ON THOSE FOUR GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL BEFORE THE TRIBUNAL RATHER THAN TO DECIDE THE ADDITIONAL GROUNDS ON THE MERITS FOR THE FIRST TIME BY ITSELF. 3 3 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. REGARDING REASON FOR RAISING ADDI TIONAL GROUNDS IN OUR OPINION THE ASSESSEE RAISED ORIGINAL GROUNDS WRON GLY BEFORE US WHICH IS INADVERTENT MISTAKE AND MORESO THE ADDITIONAL GROUNDS ARE EMANATED FROM CIT(A) THE REASON GIVEN BY THE ASSESSEE IS BONA FIDE WE ARE INCLINED TO ADMIT THE SAME FOR ADJUDICATION. 5.1 THE ASSESSEE IS IN THE BUSINESS OF GENERATION OF POWE R. IT HAD ENTERED INTO A SETTLEMENT AGREEMENT WITH M/S FIEL DSTONE (P) CAPITAL GROUP LTD. UK VIDE AGREEMENT DATED 8.10.2001. THE ASSESSEE HAD MADE CERTAIN PAYMENT AFTER DEDUCTION OF TAX AT SOURCE U /S 195 OF THE IT ACT. HOWEVER THE ASSESSING OFFICER FOUND THAT THE TAX HA S BEEN DEDUCTED ON NET OF TAX BASIS WHICH WAS NOT CORRECT AS PE R THE PROVISIONS OF SEC. 195 OF THE IT ACT. ACCORDINGLY A SHOW CAUSE NOTICE WAS ISSUED REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE PAYMENT MADE TO FIELDSTONE UK SHOULD NOT BE GROSSED UP FOR TH E PURPOSE OF TDS U/S 195 OF THE IT ACT 1961. IN RESPONSE TO THE SAID LETTER THE ASSESSEE STATED THAT THE AMOUNT PAID TO M/S FIELDSTONE TH ROUGH THE SETTLEMENT AWARD WAS IN THE NATURE OF FEES FOR FINANCIA L SERVICE FORMING PART OF FEES FOR TECHNICAL SERVICES FOR THE PURPOSE OF SE C.10(6A) OF THE ACT. HOWEVER THIS ARGUMENT WAS NOT ACCEPTABLE TO THE ASSE SSING OFFICER. THE ASSESSING OFFICER HELD THAT SINCE FIELDSTONE IS IN THE FIELD OF ADVISORY AND FINANCING THE PROJECT WHICH IS INDEPENDENT OF THE PURPOSE FOR WHICH THAT FINANCES ARE UTILIZED THE PROVISIONS OF SEC.10(6A) WILL NOT BE APPLICABLE. ACCORDINGLY THE ASSESSING OFFICER CONCLUDED THAT THE PAYMENT ON WHICH TDS HAS BEEN MADE SHOULD HAVE BEEN G ROSSED UP U/S 195A. THUS THE ASSESSING OFFICER ADDED THE TDS ALREADY MADE TO THE AMOUNT PAID BY THE ASSESSEE AND ARRIVED AT THE GROSS TOTA L AMOUNT AND CALCULATED THE TDS THEREON AT 15%. ACCORDINGLY THE ASS ESSING OFFICER RAISED A DEMAND OF RS.5 70 387/- WHICH INCLUDED INTEREST UNDER SEC.201(1A) AMOUNTING TO RS.1 81 043/-. 4 4 6. ON APPEAL CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. HOWEVER THE CIT(A) HAS FOUND OUT MISTAKE ON GROSSED U P FIGURE. ACCORDING TO CIT(A) THE ASSESSING OFFICER HAS WRONGLY ARR IVED THE GROSSED UP FIGURE AT RS.1 98 99 830/- ON WHICH TDS AT 15% AT RS.29 84 974/-. IF THE TDS AMOUNT IS REDUCED FROM THE GROSSED UP AMOUNT THE END FIGURE WILL COME TO RS.1 69 14 885/ W HEREAS THE ACTUAL FIGURE ACCORDINGLY TO CIT(A) IS AT RS.1 73 04 200/- A ND HE ARRIVED THE GROSSED UP FIGURE AS FOLLOWS: RS.1 73 04 200 X 100/85 = 2 03 57 882/-. 7. AGGRIEVED AGAINST THIS THE ASSESSEE IS IN APPEAL BEF ORE US. ACCORDING TO ASSESSEE THE ASSESSEE IS COVERED U/S 10(6A) SINCE I T FALLS UNDER THE AUTOMATIC APPROVAL CATEGORY OF INDUSTRIAL PO LICY OF GOVT. OF INDIA ISSUED BY THE MINISTRY OF INDUSTRIES GOVT. OF INDIA. HE DREW OUR ATTENTION TO THE INDUSTRIAL POLICY I.E. STATEMENT ON INDUSTRIAL POLICY NEW DELHI DATED 24.7.1991 . ACCORDING TO ASSESSEE THE ASSESSEE FALLS UNDER THE ITEM NO.4.(I) IN ANNEXURE III OF THE ABOVE INDUSTRIAL POLICY I.E. ELECTRICAL EQUIPMENT: (I) EQUIPMENT FOR TRANSMISSION AND DISTRIBUTION OF ELECTRICI TY INCLUDING POWER AND DISTRIBUTION TRANSFORMERS POWER RELAYS HT SWI TCH GEAR SYNCHRONOUS CONDENSERS. ACCORDING TO HIM IT DOES NOT FALL UNDER ITEM NO.3 OF ANNEXURE III 3. PRIME MOVERS ( OTHER THAN OTHER THAN ELECTRICAL GENERATORS) (IV) GAS/HYDRO/STEAM TURBINES UPTO 60 MW. 8. THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT THO UGH THE ASSESSEE ALSO ENGAGED IN THE PRODUCTION OF POWER IT IS ENGAGED IN TRANSMISSION AND DISTRIBUTION OF ELECTRICITY. HE SUBMITT ED THAT 5 5 TRANSMISSION AND DISTRIBUTION OF POWER IS POSSIBLE ONLY AFTER PRODUCTION. HENCE THE CLAUSE 4.1 OF ANNEXURE III IS APPLICABLE AS STAT ED ABOVE. AS SUCH SECTION 10(6A) OF THE ACT IS APPLICABLE AND ACCORDING TO LEARNED AR THE ASSESSEE HAS DEDUCTED TAX U/S.195 OF THE IT ACT. IT WAS FURTHER SUBMITTED BY THE LEARNED AR THAT AS PER PROVISIONS OF SE C.10 (6A) OF THE ACT THE GROSSING UP OF THE TAX IS NOT ATTRACTED. HE DREW OUR ATTENTION TO THE DEPARTMENT CIRCULAR NO.6436 DATED 31.8.1992 WHICH EXPLAINS THE SCOPE AND EFFECT OF THE AMENDMENT MADE IN SEC.10 (6A). AS PER 10(6A) TAX PAID ON INCOME BY WAY OF ROYALTY OR FEES FOR TECHN ICAL SERVICES DERIVED BY A FOREIGN COMPANY FROM GOVERNMENT OF INDI A OR AN INDIAN CONCERN IN PURSUANCE OF AN AGREEMENT ENTERED INTO AFTER 31.3.1976 AND WHERE THE AGREEMENT RELATES TO A MATTER INCLUDED IN THE INDUSTRIAL POLICY FOR THE TIME BEING IN FORCE AND SUCH AGREEMENT IS IN AC CORDANCE WITH THAT POLICY THEN THE TAX SO PAID IS NOT AN INCOME IN T HE HANDS OF THE NON RESIDENT. THE ASSESSEE FURTHER STATED THAT THE INDUSTRIAL POLICY OF GOVT. OF INDIA SHOWS THAT THE AGREEMENT FALLS UNDER AUTOMATI C APPROVAL CATEGORY AND IN FACT RESERVE BANK OF INDIA HAS GRANTED APPROVAL FOR PAYMENT OF FEES BY ITS LETTER DATED 14.10.1997. HE R ELIED ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF HYDERABAD INDUSTRIES LTD. VS. CIT (188 ITR 749). 9. ON THE OTHER HAND THE DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE CLAUSE 4.1 OF ANNEXURE III OF THE I NDUSTRIAL POLICY IS NOT APPLICABLE TO THE ASSESSEE. THE ASSESSEE IS ENGAGED IN SE TTING UP OF POWER PROJECT WHICH IS PRODUCING THE POWER EXCEEDING 10 0 MW AS SUCH PROVISION 10(6A) IS NOT APPLICABLE TO THE ASSESSEES CASE H ENCE THE ASSESSEE FOR THE PURPOSE OF GROSSING UP OF TAX TO BE MADE AFTER INCLUDING TDS AMOUNT IN THE INCOME OF THE ASSESSEE. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE STAT EMENT OF INDUSTRIAL 6 6 POLICY ISSUED BY GOVT. OF INDIA. IN OUR HUMBLE OPINIO N AUTOMATIC APPROVAL BY THE GOVT. AS PER THE INDUSTRIAL POLICY IS NOT APPLICABLE TO THE ASSESSEES CASE. THE ASSESSEE NEITHER FALLS IN THE CATEGORY OF CLAUSE 3 OF (IV) OF ANNEXURE NOR IN CLAUSE 4 (I) AS ELECTRICAL EQUIPMENT. IN THIS CASE THE ASSESSEE IS ENGAGED IN THE SETTING UP OF POWER P ROJECT OF MORE THAN 100 MW. THE PROVISIONS OF 10(6A) IS NOT APP LICABLE THE TAX PAID TO THE FOREIGN AGENCY WILL CONSTITUTE AS INCOME OF THE ASSESSEE AND IT SHOULD BE CONSIDERED FOR GROSSING UP. AS SUCH THE ASSESSEE IS REQUIRED TO PAY RS.1 73 04 200/- AND IT SHOULD BE GRO SSED UP BY INCLUDING THE TDS AMOUNT I.E. BY MULTIPLYING THE RS.1 73 04 200 BY 100/85. IN OUR OPINION THE CIT(A) IS JUSTIFIED IN A PPLYING THIS FORMULA AND CONCLUDING THAT THE ASSESSEE IS REQUIRED TO GROSSING UP FOR THE PURPOSE OF TAX DEDUCTION U/S 195A OF THE ACT AND ACCORDIN GLY THE ORDER OF THE CIT(A) IS CONFIRMED AND THE ASSESSEES APPEAL STAND S DISMISSED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT : 9.4.2 010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 9 TH APRIL 2010 COPY FORWARDED TO: 1. M/S SHRI K. VASANT KUMAR 102 FIRST FLOOR TARAMA NDAL COMPLEX SAIFABAD HYDERABAD 2. THE DY. CIT CIRCLE 14(4) HYDERABAD 3. CIT(A)-II HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP