2016 (4) TMI 899 - AT - Income Tax

Taxability of the amount received from Diageo Holdings Netherlands BV pursuant to the Indemnity Agreement - Held that - Revenue has not disputed or controverted the fact that admittedly the assessee has offered this amount of ₹ 62.50 crores, alongwith additional amounts of reimbursements received for payment of liabilities on account of interest, fine and penalty to tax in the immediately following financial year ending 31/3/2012 relevant to the assessment year 2012-13 and the same has been accepted by the Department in the order of assessment for assessment year 2012-13 passed under section. 143(3) of the Act vide order dated 23/3/2015. Having brought to tax the aforesaid amount of ₹ 62.50 crores, as declared by the assessee, in the assessment for assessment year 2012- 13, we are of the view that it is not open to Revenue to tax the same amount once again in the assessment year 2011-12. We are of the considered opinion that the said amount of ₹ 62.50 crores is exigible to tax, as declared by the assessee, only in the financial year relevant to assessment year 2012-13 and not in the period relevant to assessment year 2011-12 as held by the authorities below. We, therefore, reverse the impugned order of the CIT(Appeals) - Decided in favour of assessee

Issues Involved:
1. Taxability of the indemnity proceeds amounting to Rs. 62,50,00,000/- received towards Customs Duty in AY 2011-12 vs. AY 2012-13.
2. Deduction of the custom duty paid of Rs. 62,50,00,000/- under section 43D of the Act.
3. Levy of interest under sections 234B and 234D of the Act.

Detailed Analysis:

1. Taxability of Indemnity Proceeds:

Facts and Background:
The assessee, engaged in the business of trading in Foreign Made Foreign Liquors, pigments, and paintings (Art work), filed its return of income for AY 2011-12. The return was processed under section 143(1) of the Income Tax Act, 1961, and the case was subsequently taken up for scrutiny. The assessee received Rs. 62.50 crores from Diageo Brands B.V Netherlands, disclosed as "reimbursement received" in its financial statements. This amount was received as an advance towards a potential customs duty liability arising from a Directorate of Revenue Intelligence (DRI) investigation into undervaluation of imports.

Assessing Officer's View:
The AO held that the amount received was exigible to tax in AY 2011-12 as it was a trading receipt, arguing that the customs duty liability is of the importer and not Diageo Holdings B.V, Netherlands.

Assessee's Argument:
The assessee contended that the customs duty liability crystallized only in AY 2012-13, pursuant to the order of the Customs & Central Excise Settlement Commission dated 9/2/2012, and thus the amount was offered for tax in AY 2012-13.

Tribunal's Findings:
The Tribunal held that the Rs. 62.50 crores received was a reimbursement of expenses paid by the assessee on account of probable future customs duty liability. This amount was correctly shown as "Advance payment of taxes" in the financial statements for AY 2011-12. The liability to pay additional customs duty crystallized only in AY 2012-13, pursuant to the Settlement Commission's order dated 9/2/2012. Therefore, the amount was exigible to tax only in AY 2012-13 and not in AY 2011-12. The Tribunal also noted that taxing the same amount in both years would result in double taxation, which is not permissible by law.

2. Deduction of Custom Duty Paid:

Assessee's Argument:
The assessee argued that if the reimbursement of Rs. 62.50 crores was to be held as taxable in AY 2011-12, then a corresponding deduction should be allowed for the customs duty paid under section 43D of the Act.

Tribunal's Findings:
Given the Tribunal's decision that the amount was exigible to tax only in AY 2012-13, it did not find it necessary to adjudicate on the alternate ground raised regarding the deduction under section 43D.

3. Levy of Interest under Sections 234B and 234D:

Assessee's Argument:
The assessee denied liability for interest under sections 234B and 234D of the Act.

Tribunal's Findings:
The Tribunal held that the charging of interest under sections 234B and 234D is consequential and mandatory, as upheld by the Hon'ble Apex Court in the case of Anjum M.H. Ghaswala (252 ITR 1). The AO was directed to re-compute the interest chargeable while giving effect to the Tribunal's order.

Conclusion:
The Tribunal allowed the assessee's appeal for AY 2011-12, holding that the Rs. 62.50 crores was exigible to tax in AY 2012-13 and not in AY 2011-12. The issue of deduction under section 43D and the additional grounds raised were not adjudicated due to the decision on the main grounds. The levy of interest under sections 234B and 234D was upheld as consequential and mandatory.

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