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2016 (1) TMI 74 - AT - Income TaxReopening of assessment u/s 147 - assessee has not filed any details with regard to payment made to non-resident and the details of tax deducted at source - Held that - Even after a specific questionnaire was issued to the assessee by the Assessing Officer during the course of regular assessment proceedings, the assessee could not furnish the name of the recipient, nature of payment and the details of tax deducted at source. Therefore, as rightly found by the Assessing Officer, there was a negligence on the part of the assessee in furnishing fully and truly all the material facts relevant for completing the assessment.There is no discussion about the expenditure incurred by the assessee with regard to payment of lease rentals to non-resident and the claim of depreciation. Therefore, it is obvious that the Assessing Officer has not formed any opinion with regard to this issue. When the Assessing Officer has not formed any opinion, it cannot be said that there was a change of opinion as found by the CIT(A). - Decided against assessee Disallowance of marketing commission fees paid to overseas parties - Held that - The claim of the assessee is that the assessee has taken container on lease and used the same for his leasing business. The copies of the agreement entered into between the assessee and M/s ABC Containers Pvt. Ltd. Colombo, for taking containers on lease or the services to be provided by M/s ABC Containers Pvt. Ltd. Colombo, are not furnished either before the lower authorities or before this Tribunal. The CIT(A) confirmed the addition made by the Assessing Officer on the ground that the assessee has not established that the commission paid to non-resident company was for soliciting business outside India. Therefore, it is obvious that in the absence of any material before the lower authorities, the payment of commission to M/s ABC Containers Pvt. Ltd. Colombo was disallowed. This Tribunal is of the considered opinion that giving one more opportunity to the assessee to produce necessary material before the Assessing Officer may not prejudice the interest of Revenue in any way. The orders of the lower authorities are set aside and the issue of disallowance is remitted back to the file of the Assessing Officer. - Decided in favour of assessee by way of remand. TDS u/s 195 - non deduction of TDS on leasing charges paid to the non-resident company - Held that - Sub clause (4) of Article 9 clearly says that clause (1) and (2) of Article will apply to income of an enterprise of a Contracting State from the use, maintenance or rental of containers. In this case, the non-resident company, M/s Crono Containers Ltd, UK, admittedly, leased out the container to the assessee and the assessee is paying lease rentals for use of the container belonged to M/s Crono Containers Ltd, UK. Therefore, the lease rental of the container is subjected to tax in the Contracting State namely, UK, in view of Article 9 of the DTAA. It is well settled principles of law that DTAA will prevail over the domestic law namely, Indian Income-tax Act. It is open to the parties to take advantage of the beneficial provisions under the Income-tax Act, 1961, in view of sec. 90(2) of the Act. In view of the DTAA, lease rental received by M/s Crono Containers Ltd, from the assessee is not taxable in India, therefore, there is no liability for the assessee to deduct tax u/s 195 of the Act - Decided in favour of assessee. Disallowance domestication expenses - Held that - It is not in dispute that the marine container does not belong to the assessee. In fact, the container was taken on lease from M/s Crono Containers Ltd, UK. The nature of expenditure which was claimed as domestication expenses are customer domestication, transportation cost, lease rentals, survey, handling charges etc. When the assessee has taken the marine container on lease, the assessee is duty bound to maintain the container and keep the same to be fit for use. It is also not in dispute that the container taken on lease was in turn used by the assessee in its leasing business. Therefore, as rightly found by the CIT(A), the expenditure incurred by the assessee in the nature of customer domestication, transportation cost, lease rental, survey etc. are regular and recurring expenditure therefore, it is in the revenue field.- Decided in favour of assessee. Disallowance u/s 14A - CIT(A) restricted the disallowance to 2% - Held that - CIT(A) restricted the disallowance to 2% of the gross exempted income. It is not in dispute that Rule 8D is not applicable for the year under consideration, therefore, this Tribunal is of the considered opinion that the CIT(A) has rightly restricted the disallowance to 2% of the exempted income. This Tribunal do not find any infirmity in the order of the CIT(A). - Decided against revenue Disallowance of key man insurance premium paid - CIT(A) deleted the disallowance - Held that - As rightly contended by the ld. Counsel, the keyman insurance policy is only to protect the company from adverse financial effects in case of unexpected death of Managing Director. But when the assesseecompany knows very well that no claim could be made on the death of the Managing Director, Shri Bijoy Poulose since he was holding more than 51% of the shares in the company, it is not known how the payment of ₹ 10 lakhs towards premium is going to protect the assessee-company from adverse financial effects in case of unexpected death of the Managing Director. When the assessee-company is not eligible to make a claim since the keyman insurance policy holder is holding more than 51% of the shares in the company, this Tribunal is of the considered opinion that such a expenditure was not for business purposes. The assessee-company has paid the amount knowing fully that they cannot claim any compensation on the death of the Managing Director, Shri Bijoy Poulose. Under those circumstances, such a claim cannot be allowed while computing the total income. The CIT(A) has proceeded on a footing that the insurance company accepted the proposal of the assessee-company and issued the policy. However, he failed to consider that the policy was issued under certain restriction one of which is that the insured person should not hold more than 51% shares of the company. Since this restriction clause was not taken into consideration by the CIT(A), this Tribunal is unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the Assessing Officer is restored.- Decided against assessee
Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act. 2. Disallowance of expenses under Section 40(a)(i) for non-deduction of tax at source. 3. Treatment of domestication expenses as capital or revenue expenditure. 4. Disallowance under Section 14A for expenses related to exempt income. 5. Disallowance of keyman insurance premium. Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: For the assessment year 2002-03, the Revenue challenged the CIT(A)'s decision that reopening of assessment under Section 147 was not valid. The Revenue argued that the assessee had not fully disclosed all material facts, leading to income escaping assessment. The Tribunal found that the Assessing Officer had valid grounds for reopening the assessment after four years due to the assessee's failure to disclose fully and truly all material facts. Therefore, the reopening was deemed valid, and the matter was remitted back to the CIT(A) for consideration on merit. For the assessment year 2003-04, the assessee did not press the ground challenging the reopening of assessment under Section 147, and the ground was dismissed as not pressed. 2. Disallowance of Expenses under Section 40(a)(i): For the assessment year 2003-04, the assessee's payment of Rs. 3,78,342 to M/s ABC Containers Pvt. Ltd., Colombo, was disallowed for non-deduction of tax at source. The Tribunal remitted the issue back to the Assessing Officer for reconsideration, allowing the assessee to produce necessary material to substantiate the claim. For the assessment year 2006-07, the payment of Rs. 3,68,04,792 to M/s Crono Containers Ltd, UK, was disallowed by the Assessing Officer. The CIT(A) allowed the claim, holding that the payment was not taxable in India under Article 9 of the DTAA between India and the UK. The Tribunal confirmed the CIT(A)'s decision, stating that the lease rental received by M/s Crono Containers Ltd was not taxable in India. For the assessment year 2008-09, the same issue of lease rental payment to M/s Crono Containers Ltd, UK, was considered. The Tribunal upheld the CIT(A)'s decision, following the reasoning for the assessment year 2003-04. 3. Treatment of Domestication Expenses: For the assessment year 2006-07, the Revenue argued that domestication expenses of Rs. 64,66,273 were capital in nature. The CIT(A) treated these expenses as revenue expenditure, and the Tribunal confirmed this decision, noting that the expenses were regular and recurring, related to the maintenance and use of leased containers. 4. Disallowance under Section 14A: For the assessment year 2006-07, the CIT(A) restricted the disallowance under Section 14A to 2% of the gross exempted income, as Rule 8D was not applicable for the year under consideration. The Tribunal upheld this decision, agreeing that a reasonable estimation was necessary. 5. Disallowance of Keyman Insurance Premium: For the assessment year 2006-07, the Assessing Officer disallowed Rs. 10 lakhs paid as keyman insurance premium, as the insured (Managing Director) held more than 51% of the shares, violating the policy's terms. The Tribunal set aside the CIT(A)'s decision, restoring the Assessing Officer's disallowance, as the policy's restriction clause was not considered by the CIT(A). Summary of Results: - Assessee's appeals for assessment years 2002-03 and 2003-04 were partly allowed for statistical purposes. - Revenue's appeal for assessment year 2002-03 was allowed. - Revenue's appeals for assessment years 2003-04 and 2008-09 were dismissed. - Revenue's appeal for assessment year 2006-07 was partly allowed.
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