Delhi High Court

Cit vs At & T Communication Services ... on 19 January, 2012

Author: Sanjiv Khanna

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                  ITA No. 526/2011

%                           Date of Decision : 19th January,2012

        CIT                                   ..... Appellant
                                 Through   Mr. Abhishek Maratha with Ms.
                                           Anshul Sharma, Advs.
                        versus

        AT & T COMMUNICATION SERVICES
        INDIA PVT LTD          ..... Respondent

Through Mr. Jayant K. Mehta and Mr. Sukant Vikram, Advs.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporters or not ?

3. Whether the judgment should be reported in the Digest?

SANJIV KHANNA, J: (ORAL)

1. The Revenue is aggrieved by the order of the Income Tax Appellate

Tribunal (for short „the Tribunal‟) dated 19th February, 2010 in ITA No.

2788/Del/2006 deleting the penalty under Section 271(1)(c) of the Income

Tax Act, 1961 (for short „the Act‟). It pertains to the Assessment Year

2000-01.

2. The Assessing Officer had imposed penalty under the said section

on three accounts:-

(i) Rs. 1,31,58,290/- on account of disallowance of expenses claimed respect of payment made to AT&T, Singapore;

(ii) Rs.33,333/- being disallowance of expenses paid to the Registrar of Companies (ROC); and

(iii) Rs.3,98,36,108/- being amount received from Birla AT&T.

3. At the outset, we may note that the third addition has been set aside

for fresh adjudication by the Tribunal in the quantum appeal. The

Revenue, therefore, has not raised this issue in the present appeal. The

question therefore is whether the Tribunal was justified in deleting the

penalty under Section 271(1)(c) of the Act in respect of

additions/disallowance (i) and (ii).

4. Learned counsel for the appellant/Revenue has drawn our attention

to the order dated 3rd October, 2008 passed by the Tribunal in the

quantum proceedings and submits that there is contradiction in this order

and the order now passed by the Tribunal in the penalty proceedings. He

further submits that the question of malafides is irrelevant and cannot be a

ground to quash the penalty. The assessee had accepted disallowance of

Rs. 33,333/-, which was paid to the ROC and did not file any appeal

against the order of the Assessing Officer.

5. The question whether a particular expenditure is capital or revenue

in nature is always debatable and two views are possible. It is an admitted

position that the assessee had made payment of Rs. 1 lakh to the ROC and

had amortized the said amount. 1/3rd of this amount was claimed as a

revenue deduction in this year. It was held by the Assessing Officer that

the payment to ROC was capital expenditure and not revenue expenditure.

The tribunal has accepted the plea and explanation of the respondent-

assessee that they genuinely believed that 1/3rd of the amount paid to the

ROC could be treated as revenue expense in view of the legal advice

offered. The tribunal has noticed that identical claim for the assessment

year 2000-01 was allowed by the Assessing Officer. Keeping in view the

total quantum of income offered for taxation, the exiguous amount

involved and the explanation offered, we do not think that it will be

appropriate to admit the present appeal on the said issue.

6. Rs. 1,31,58,290/- was disallowed under Section 40(a)(i). It is

relevant to refer to certain facts and the explanation given by the assessee,

which has been accepted. The aforesaid payment was for services

rendered by AT&T Singapore. There is no dispute that the payment has

been made and TDS on the said amount was paid to the Government on

23rd November, 2001 i.e. after the end of the previous year relevant to the

assessment year 31st March, 2001. The respondent/assessee had received a

bill from AT&T Singapore on 23rd November, 2001. Quantum and

genuineness of the expenditure is not disputed.

7. The Tribunal in the quantum proceedings had examined the said

aspect including the contention of the respondent/assessee that AT&T

Singapore had rendered services during the period relevant to the

assessment year in question and the assessee had also earned the income

as a result of the said services during the period relevant to the assessment

year. It was held as under:-

"It is no doubt true that the relevant bill was raised by AT&T, Singapore on the assessee company only in the month of November, 2001. However, it is also true that the said bill was

raised for the services which had been rendered by AT&T, Singapore to the assessee company in terms of an agreement already entered into which was in force throughout the year under consideration. A perusal of the copy of the bill raised by AT&T, Singapore on the assessee company placed at page No.93 of the assessee‟s paper book also shows that the narration/description given therein was "charges towards remote end support and network charges for period April, 2000 to 31st March, 2001 as per clause (1) of agreement effective 1 st April, 2000". This description given in the relevant bill clearly shows that not only the services charged for in the said bill were rendered by AT&T, Singapore to the assessee company in terms of an agreement which was effective from 1.4.2000 but even the charges for the said services were quantified as per the terms and conditions of the said agreement. The liability for the said services thus had not only arisen during the year under consideration in terms of the agreement which was very much in force but even the quantification thereof was possible with reasonable certainty in that year. In our opinion, the said liability thus had crystallized during the year under consideration itself irrespective of the fact that the relevant bill was raised by AT&T Services in the month of November, 2001." (emphasis supplied)

8. Thereafter, the Tribunal examined the provisions of Section 40(a)(i)

and referred to the decision relied upon by the respondent-assessee in CIT

vs. Nestle India Ltd. (2005) 275 ITR 1 (Del) and decision dated 9th May,

2007 in ITA No. 641/2006 titled Oracle Software India Ltd. vs. CIT.

However, it was held that the tax had been deposited only in November,

2001, and therefore, in view of Section 40(a)(i), the deduction as an

expense would be available in the next assessment year and not in the

assessment year in question. Accordingly, the addition made by the

Assessing Officer was upheld.

9. After referring to the factual matrix of the present case, the

Tribunal in the impugned order in the penalty proceedings went into the

question of whether or not the assessee has been able to justify and

discharge the onus under Explanation 1 to Section 271(1)(c) of the Act. It

may be noted here that the respondent-assessee had contended that

Section 40(a)(i) was not applicable as the words used were „tax has been

paid or deducted‟. The contention of the respondent was that they had

deducted the TDS on 31st March, 2001, but the same was paid on 23rd

November, 2001. Accordingly, it was submitted that Section 40(a)(i) was

not applicable. The said contention was rejected upholding that the words

„paid or deducted‟ cannot be interpreted in the manner as suggested by the

respondent assessee.

10. Section 40(a) (i) during the relevant assessment year was as under:

"40. Amounts not deductible.--Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--

(a) in the case of any assessee--

(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B:

Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted.

Explanation.--For the purposes of this sub-clause,--

(A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of Section 9;

(B) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of Section 9;"

The said section was amended w.e.f. 1.4.2004 by the Finance Act, 2003

and after amendment the sub-clause (i) of section 40(a) was modified as

under:-

"40. Amounts not deductible.--Notwithstanding anything to the contrary in Sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--

(a) in the case of any assessee--

(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,--

(A) outside India; or

(B) in India to a non-resident, not being a company or to a foreign company,

on which tax is deductible at source under Chapter XVII- B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of Section 200:

Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub- section (1) of Section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.