Dr. Arjun Lal Saini, AM:-The captioned appeal filed by the Revenue, and Cross Objections filed by the assessee, pertaining to assessment year 2006-07, are directed against the order passed by the ld. Commissioner of Income Tax (Appeals)-VI Kolkata, in appeal No.9/CIT(A)-VI/2008-09/DDIT(II)-1/Kol, dated 11.08.2009, which in turn arises out of an order passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (in short the Act), dated 31/12/2008.
2. The appeal filed by the Revenue and the cross objections filed by the Assessee relate to the same assessee, same assessment year, common issues involved, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience.
3. Brief facts of the case qua the assessee are that the assessee is a non resident partnership firm. The partnership was formed by a deed of agreement dated December 23, 1998 in the U.K. between Joy Mining Machinery Ltd. (JMML) having registered office at Bromyard Road, Worcestor, UK and Joy Manufacturing Company (U.K) Ltd. having registered office at 1, Blytheswood Square Glasgow U.K. The above two partners in the partnership under the name Joy Partnership and Kier International Mining partnership ( another partnership Body in the U.K.) had formed a joint venture in the U.K. namely Joy Kier Joint Venture and entered into a contract dated 06.04.1999 with South Eastern Coalfields Ltd. ( S.E.C.L), Bilaspur, M.P., a Govt. of India undertaking and a wholly owned subsidiary of Coal India Ltd. for providing services at the Chirimiri Colliery Zero Seam Underground mines in the Chirimiri area of the said company. Subsequently, Kier International Partnership withdrew from the joint venture and joy Partnership became the sole executor of the contract. The scope of services include supervision and assistance in erection and commissioning of SECL's equipment etc. The contract became operational from 01.11.2001. Later, the assessee entered in to other contracts with Western Coalfields ltd and Singareni Collieries Company ltd, also subsidiaries of Coal India Ltd, for providing services at their Collieries. Work under these contracts continued during the previous year. The project office of the assessee is presently situated at mining Centre, 85/2, Topsia Road (south) Road, Kolkata-700046, which is also the permanent establishment of the assesse in India through which the business is conducted. The assessee filed the original return of income on 31.10.2006 declaring total income at Rs. 19,77,410/-. Later on, the assessee filed the revised return on dated 19.04.2007. The assessee's case was selected for scrutiny U/s 143(2) of the Act and the Assessing Officer completed the assessment by making the disallowance U/s 40(a) (ia) of the Income Tax Act at Rs. 30,16,461/-. The Assessing Officer observed that ‘Tax’ on ‘Tax perquisite’ being non-monetary in nature and paid by the assessee on behalf of its employees, is not to be added again for the purpose of computation of taxable income of the employee and consequently, it is not an admissible expenses in the hands of the employer U/s 40(a) (v) of the Act and this way the Assessing officer disallowed Rs. 30,16,461/-.
4.Disatisfied with the order of Assessing Officer, the assessee filed an appeal before the Commissioner of Income tax (Appeals), who has deleted the addition made by the AO. The ld CIT (A) observed that the statement furnished by the assessee during the course of assessment proceedings which shows reconciliation between the amount debited under the head “payroll cost’ not shown in gross salary in Form No.16 issued to the employee read with form No.24. In the said reconciliation statement the ld CIT(A) observed that this statement included an amount of Rs. 30,16,461/- which stood debited to the profit and loss account of the appellant due to grossing up but was not included in the gross salary of the expatriate employees reflected in the Form No. 16 issued to employees read with form No.24. The assessee explained that the said amount represents a part of the tax borne by the assessee on salary of its expatriate employees, which was computed in accordance with the method stated in the decision rendered by the Special Bench of the Hon'ble ITAT, Delhi in RBF Rig Corporation Vs. ACIT. It is also true that regarding the applicability of the provisions of section 40(a) (v) of the Act, the section 10(10CC) of the Act applies in case of non-monetary perquisite where no grossing up has been done while computing the taxable income of the expatriate employees. The Grossing up has been done while computing the taxable of the expatriate employees there can not be any question of application of Section 10(10CC) and accordingly no disallowance can be inflicted U/s 40(a) (v) of the Act and accordingly the ld CIT(A) deleted the addition.
5. Not being satisfied with the order of the ld CIT(A), the Revenue is in appeal before us and has taken the following grounds of appeal.
“1) that on the facts and circumstances of the case the ld CIT(A) erred in allowing a relief of Rs. 30,16,461/- to the assessee by deleting the disallowance made by the assessing officer U/s 40(a)(v) of the I.T. Act1961.
2) that on the facts and circumstances of the case the ld CIT(A) erred in not accepting the fact that ‘tax’ on ‘tax perquisite’ being non-monetary in nature and paid by the assessee on behalf of its employees, is not to be added again for the purpose of computation of taxable income of the employee and consequently, it is not an admissible expense in the hands of the employers U/s 40(a) (v) of the Act.
3) that on the facts and circumstances of the case the ld CIT(A) erred in allowing the ‘set off of carry forward of unabsorbed depreciation of A.Y.2005-06 of Rs. 36,353/- to the assessee in the A.Y. 2006-07 as the department has preferred an appeal against the order of the ld CIT(A) for the A.Y.2005-06 before the Hon'ble ITAT.”
The Assessee filed the following Cross Objections(CO-89/09):
1. that on the facts and circumstances of the case the ld CIT(A) erred in upholding the action of the Assessing Officer on account of addition of Rs. 4,08,031/- being interest on fixed deposit.
2. that on the facts and circumstances of the case the ld CIT(A) erred in upholding the levy of interest under section 234B of the Act.
6. The ground No.1 and 2 raised by the Revenue relate to relief provided by the ld CIT(A) of Rs. 30,16,461/- to the assessee by deleting the disallowance made by the assessing officer U/s 40(a)(v) of the I.T. Act1961
6.1 Ld counsel for the assessee has submitted before us that in order to understand the issue properly it is necessary to go through the relevant provisions of section 40(a) (v) and Section 10(10CC) of the Act. The relevant part of these sections are reproduced below:
Section 40(a)(v) of the Income Tac Act, 1961 reads as follows:
“………..Amounts not deductible.
40. 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 an assessee-
[(v) any tax actually paid by an employer referred to in clause (10CC) of section 10]
Further, Section 10(10CC) of the Act reads as follows-
“…………Incomes not included in total income.
10.In computing the total income of a previous year of any person any income falling within any of the following clauses shall not be included- [(10CC) in the case of an employee, being an individual driving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956……”
The ld counsel submitted that in the present case, the exemption under section 10(10CC) of the Act is not applicable as the tax borne by employer has already been grossed up. Moreover, exemption under section 10(10CC) of the Act has also not been claimed. On perusing the same, it would be clear that the assessee has paid tax on tax and not claimed exemption under section 10(10CC) of the Act.
6.2 On the other hand, ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity.
6.3 Having heard the rival submissions and perused the material available on record, we noticed that the exemption under section 10(10CC) of the Act is not applicable as the tax borne by employer has already been grossed up. Moreover, exemption under section 10(10CC) of the Act has also not been claimed by the assessee. The assessee has paid tax on tax and not claimed exemption under section 10(10CC) of the Act. Therefore, in our view, there can not be any disallowance under section 40(a) (v) of the Act, and hence we confirm the order of ld CIT(A).
6.4 In the result, the appeal filed by the Revenue on ground No.1 and 2, is dismissed.
8.Ground No. 3 raised by the Revenue is consequence in nature. As the Department has preferred an appeal against the order of the ld CIT(A) for the A.Y. 2005-06 before the Hon’ble ITAT and the issue of set off of carry forward of unabsorbed depreciation for A.Y. 2005-06 of Rs. 36,353/-, would be decided as per the order of Hon'ble ITAT. Therefore, this ground raised by the Revenue is pre-mature and consequential in nature and does not require adjudication.
9. Cross Objection No.1 raised by the assessee relates to addition of Rs. 4,08,031/- on account of interest on fixed deposit. A limited request of ld.Counsel of assessee before us, is for a direction to direct the AO that if the same income is taxed in the succeeding year on receipt basis then the same should be deleted in previous year, in which it had been taxed based on accrual, to avoid double taxation. We agree with the submission of ld AR and we direct the Assessing Officer to delete the interest income if the same income is offered to tax by the assessee in the succeeding assessment year. Therefore, we allow CO.No.1 for statistical purposes.
9.1 In the result, the cross objection No.1 raised by the assessee is allowed for statistical purposes.
10. Cross objection No. 2 raised by the assessee relates to levy of interest under section 234B of the Act, which is pre-mature and consequential in nature. Assessing Officer is directed to give consequential relief.