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TMI Blog2016 (8) TMI 1311X X X X Extracts X X X X X X X X Extracts X X X X ..... 71,13,377/- being the amount of service tax deducted by the customers from the amounts payable to the appellant in terms of section 66A of the Finance Act, 1994, by holding that the same is to be included in the taxable income of the appellant for the relevant assessment year. 1.1 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the liability to deposit service tax applicable on the services rendered by the appellant vests with the customers of the appellant under the reverse charge mechanism in terms of section 66A of the Finance Act, 1994. 1.2 The Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the above amount did not accrue to the appellant and, therefore, the same cannot form part of the income earned by the appellant. 2. The Ld. CIT(A) has erred in confirming the action of the Ld. AO in levying interest under section 234B of the Act. The appellant craves leave to add, alter, modify or delete any grounds of appeal at or before the time of hearing." (B). A.Y. 2009-10 : 1. The Ld. CIT(A) has erred in confirming the action of Ld. AO in making an addition of Rs. 1,88,47,745/- being the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thereafter, the case of the assessee company was taken up for scrutiny proceedings, wherein the A.O taking cognizance of the fact that as against the amount of royalty of Rs. 24,82,77,879/- on which tax had been deducted at source by the customers, as revealed by the TDS certificates for the year under consideration, the assessee company in its 'Return of income' had only accounted for royalty amount of Rs. 18,86,36,050/-, therefore called upon the assessee company to put forth an explanation as regards the short/deficit amount of royalty of Rs. 5,96,41,829/-[i.e Rs. 24,82,77,879/- (-) Rs. 18,86,36,050/-], which was reconciled by the assessee company as under:- S.No Particulars Amount 1. Difference for the reason that as against accounting of the royalty income on the basis of 'Cash system' of accountancy followed by the assessee company, tax was deducted at source by the customers on 'accrual' or 'receipt', whichever was earlier. Rs. 4,25,28,452/- 2. Difference for the reason that the A.O had included the amount which was reduced by the customers from the fee/royalty payable to the assessee company on account of the 'Service tax' deposited by them with the government exche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no option, accepted the said act of the customers. It was thus submitted by the Ld. A.R that as neither any income equivalent to the amount of the service tax reduced by the customers from the fee/royalty payable to the customers had at any point of time ever accrued to the assessee company, nor was ever received by the latter, as a result whereof, as the said amount did never partake the color and character as that of 'Income', therefore the assessee company could not be saddled with taxes as regards the same. The Ld. A.R for the assessee company took us through section 66A, as had been made available on the statute vide the Finance Act, 2006, w.e.f 18.04.2006, providing for levy of service tax in cases where specified services are provided by a non-resident to a resident from outside India, as per which, on the basis of mechanism of 'reverse charge', where an Indian resident receives taxable services from a non-resident, then such recipient of service is treated as deemed service provider and is liable for payment of service tax, as if he himself had provided the services in India. In the backdrop of the aforesaid settled position of law, it was submitted by Ld. A.R that as in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, now when no income to the said extent had resulted at all to the assessee company, therefore the issue of bringing the said amount to tax in the hands of the assessee company did not arise at all. That alternatively, it was further submitted by Ld. A.R that as the assessee company was consistently maintaining its 'books of accounts' on 'Cash basis', as per which income could only be recognized when the assessee company received the same, therefore as no amount was ever received by the assessee company to the extent the same had been reduced by the customers on account of service tax, thus on the said count too the amount could not be brought to tax in the hands of the assessee company. The Ld. A.R in support of his aforesaid contention therein relied upon the following case laws:- (i). DIT-I vs. Mitchell Drilling Internation (P) Ltd., (2015), 62 taxamann.com 24(Del) (ii). The ADIT(IT) 3(1) vs. Haldor Topsoe A/c., ITA No.4431/M/05 & 6868/Mum/2007 order dated 25/04/2012. (iii). Marubeni Corporation vs. ADIT (IT)-4(1),(2013), 37 taxamann.com 318 (Mum-Trib) (iv). Veolia Eau-Compagnie vs. ADI, ITA No.2131/Mds/2010, Order dated 23/6/2011. (v). ACIT, Cir.2(2) vs. Louis Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegral part of the commercial transaction of the sale of liquor and were the assessee's trading receipt. In dealing with the contention that those amount were entered in a separate ledger termed "empty bottles return security deposit account", this Court observed: "So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was sold. Nor does it make any' difference that the price of the bottles was entered in the general trading account while the so-called deposit was entered in a separate ledger termed 'empty bottles return deposit account' for, what was a consideration for the sale cannot cease to be so by being written in the books in a particular manner" 10. We, therefore, agree with the High Court in so far as it has answered the question referred to it in the negative and against the appellant. The appeal consequently fails and is dismissed with costs. " The Ld. D.R further placed reliance on the decision of the ITAT Delhi 'I' Bench in the case of :Technichip Offshore Contracting Br. (supra) to substantiate his contention that the service tax deposited by the customer had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the facts involved in the case of the present assessee company, the amount of Rs. 1,71,13,377/-(supra) reduced by the customers on account of service tax liability from the amount of fees/royalty, which otherwise but for the said reduction would had been payable to the assessee company, and remitting of only the balance amount by the customers in full and final discharge of their liability as regards the fees/royalty payable to the assessee company, which had been accepted, agreed upon and acknowledged by the assessee company, as such, coupled with the fact that the assessee company had not retained with itself any right as regards recovery of any such amounts deducted by the customers qua the liability towards service tax as was so cast upon them, therefore in light of the aforesaid facts as they so remain, cannot be treated as the income of the assessee company. In this regard it would be relevant and pertinent to point out that as neither any part of the aforesaid amount so reduced by the customers from the amount of fees/royalty which otherwise would had been payable to the assessee company, had at any point of time accrued as income to the assessee company, nor was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax' so collected by the assessee would form part of its trading or business receipt, though subject to a rider that the assessee would stand entitled to claim deduction of the amount, as and when the same is deposited with the State exchequer. Thus unlike the facts involved in the case before the Hon'ble Supreme Court, now when in the case of the present assessee company before us, neither any part of the aforesaid amount so reduced by the customers from the amount of fees/royalty which otherwise would had been payable to the assessee company, had at any point of time accrued as income to the assessee company, nor was the same ever received by the latter, therefore the said amount cannot be held to be 'Income' in the hands of the assessee company. Now adverting to the order of the Hon'ble ITAT Delhi 'I' Bench, so passed in the case of : DDIT(Intl). Vs. Technichip Offshore Contracting Br. (Appeal No. ITA 4613/D/07; dated. 16/01/2009), relied upon by the Ld. D.R.as well as the authorities below, after perusing the facts involved in the said case, it stands gathered that unlike the facts involved in the case of the present assessee company, in the aforesaid case relied upon by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards interest u/s 234B of the 'Act' could be fastened upon it. That before the CIT(A) the assessee company in support of its aforesaid contention placed reliance on the following judicial pronouncements:- (i). Motorola Inc. Vs. DCIT [96 ITD 269(Del)(SB)] (ii). Sedco Forex International Drilling Inc. Vs. DCIT [72 ITD 415 (Del)] (iii). CIT & Anr. Vs. Sedco Forex International Drilling Co. Ltd. & Ors [264 ITR 320(Uttaranchal)] (iv). CIT Vs. Madras Fertilizers Ltd. [149 ITR 703](Mad) (v). CIT Vs. Ranoli Investments Pvt. Ltd. [235 ITR 433](Guj) The Ld. CIT(A) however being of the view that unlike as per the facts involved in the case laws relied upon before him, the assessee company had not offered its income for taxation following any recognized method of accounting, and rather as a matter of fact had understated its taxable income and claimed refund of TDS, therefore upheld the interest levied by the A.O u/s 234B of the 'Act'. 4.5. The Ld. A.R submitted before us that as the entire income of the assessee company was subject to deduction of tax at source, therefore the latter was not liable to pay any advance tax, as a result whereof the authorities below have erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clarity rely on the observations of the Hon'ble Madras High Court in the case of : Madras Fertilizers Ltd. (supra), wherein it was held by the Hon'ble Court, as under: - "Hence, where the statute provides for deduction of tax at source in respect of a particular income, the concerned assessee need not pay any advance tax in relation to the said income. 4.7. That still further a perusal of Sec. 234B reveals that once an assessee falls within the scope and ken of Sec. 208 of the 'Act' and is found liable to pay advance tax, but had either failed to pay the same or the amount so paid by him is less than ninety percent of the assessed tax, he therein stands liable to be fastened with interest u/s 234B of the 'Act'. In context of the issue under consideration before us, it would be relevant and pertinent to point out that unlike Sec. 209(1)(d) of the 'Act', wherein in the process of computing the advance tax liability of an assessee, cognizance is taken of the income tax which would be deductible at source during the financial year under any provision of the 'Act', from any income which has been taken into account in computing the total income, i.e irrespective of the fact as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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