The order of the Bench was delivered by
By way of these appeals, the assessee has challenged the impugned common order of even date 24th November 2010, passed by the learned Commissioner (Appeals)-X, Mumbai, for the quantum of assessment passed under section 143(3) r/w section 147 of the Income Tax Act, 1961 (for short "the Act"), for the assessment years 2002-03, 2003-04 and 2004-05 respectively. Since all these appeals involve common issues, except variation in figures, which are arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order.
We first take up assessee's appeal in ITA no. 340/Mum./2011, for assessment year 2004-05. In the grounds of appeal, the assessee has challenged mainly three issues:-
(i) In grounds no.1 and 2, the assessee has challenged the validity of re-opening of assessment under section 147.
(ii) In ground no.3, the assessee has challenged the disallowance of payment to M/s. J.S. Financial Services; and
(iii) In ground no.4, the assessee has challenged the chargeability of interest under section 220(2) of the Act.
2. Firstly, apropos ground no.3, i.e., second issue, the learned Counsel, appearing on behalf of the assessee, at the outset, submitted that the issue of disallowance of expenses being payments made to M/s. J.S. Financial Services for maintaining and running of a branch by treating it to be a joint venture, has come up before the Tribunal in assessee's own case in ITA no.479/Mum./2009, order dated 20th June 2012, for the assessment year 2006-07, wherein this issue has been decided in favour of the assessee.
3. The learned Departmental Representative, on the other hand, conceded that this issue has already been considered by the Tribunal in assessee's own case for assessment year 2006-07.
4. After carefully going through the impugned orders and the decision of the Tribunal in assessee's own case, we find that the issue before us is similar to the issue decided by the Tribunal in assessee's own case for assessment year 2006-07 wherein the disallowance of expenses of payments made to M/s. J.S. Financial Services was deleted by the Tribunal. The relevant facts, arguments and the findings of the Tribunal are reproduced herein below for better appreciation of facts:-
"5. The fourth dispute is regarding disallowance of claim of deduction of Rs. 29.36 lacs claimed by the assessee against the share of profit in the branch. The assessee during the assessment proceedings explained that the assessee had opened a branch at Lokhandawala, Andheri, and since the assessee was finding it difficult to get a person as branch manager who could take care of the business, the assessee entered into an arrangement with M/s. J.S. Financial Services (in short, JSMS) to manage the activities of the branch. It was submitted that it was assessee's own branch where all assets and equipments belonged to the assessee. As per the arrangement, all policy decisions were to be taken at head office and day to day decision making was left to JSMS. The net profit after accounting all expenses of the branch but before tax was to be shared between the assessee and JSMS in the ratio of 65:35. The assessee further submitted that such type of payment was neither fees for professional services as prescribed under section 194J not it was covered as brokerage or commission under section 194H and therefore, no tax was required to be deducted from such payment.
5.1 The AO however observed that the arrangement made with M/s. JSMS was of the nature of joint venture in which the assessee was providing investment and day to day management of the branch including rate of brokerage, opening of bank account, collection of funds from clients, banking operations etc were being handled by M/s. JSMS. The AO also observed that the case was similar to CIT vs. Panipat Woolen and General Mills Company Ltd. (103 ITR 66), in which case, the Hon'ble Supreme Court held that it was joint venture and deduction was not allowable. Alternatively, the AO also observed that the services rendered by M/s. JSMS were of the nature of managerial services, and therefore tax was required to be deducted from payment for such services under the provisions of section 194J as assessee was managing day to day affairs of the branch on behalf of the assessee, which had not been done. The AO accordingly disallowed the claim of the assessee.
5.2 The assessee disputed the decision of AO and submitted before CIT(A) that the case of Panipat Woolen and General Mills Company Ltd. (supra) was distinguishable as in that case there was sharing of both profit and loss and other party had made substantial investments. In the present case, all investments were made by the assessee and all policy decisions were taken by the assessee and there was no sharing of losses. Therefore, arrangement could not be called as joint venture. As regards applicability of section 194J, it was submitted that M/s. JSMS which was proprietary concern of K.P. Shroff was assisted by six employees for broking business. Therefore, he was not rendering any managerial services. He was also not rendering any technical services. Therefore, services were not covered by section 194J. Thus, disallowance could not be made under section 40a(ia) on grounds of non deduction of tax at source. CIT(A) however, was not satisfied by the contentions raised. It was observed by him that profit sharing is essential motive in formation of joint ventures and therefore, the arrangement made by the assessee was of the nature of joint venture and deduction was therefore not allowable in view of the judgment of Hon'ble Supreme Court in case of CIT vs. Panipat Woolen and General Mills Company Ltd. (supra), CIT(A) also agreed with the alternate finding of AO that Shri K.P. Shroff was managing the entire affairs of the branch which was nothing but managerial services, therefore, provisions of section 194J were applicable and the claim was also not allowable under section 40(a)(ia) as the assessee had not deducted tax at source. CIT(A) accordingly confirmed the disallowance made by AO, aggrieved by which, the assessee is in appeal before the Tribunal.
5.3 Before us, the ld. AR for the assessee reiterated the submissions made before the lower authorities that arrangement made with M/s. J.S. Financial services was not a joint venture as the investments had been made by the assessee and policy decisions were taken by the assessee. The case was, therefore, different from the case of CIT vs. Panipat Woolen and General Mills Company Ltd. (supra). It was also submitted that, in case, the arrangement was treated as joint venture, the income has to be assessed as AOP and payment made to M/s. JSMS would be share of profit which can not be assessed in the name of the assessee. Reliance was placed on the judgment of Hon'ble High Court of Delhi in the case of CIT vs. Malibu Estate P. Ltd. (298 ITR 72). It was also pointed out, that in case of joint venture, there was diversion of income at source by overriding title and amount payable to the joint venture partner as profit could not be assessed as income. As regards the applicability of provisions of section 194J, it was submitted that the services rendered by M/s. JSMS could not be considered as professional or management services and therefore no tax was required to be deducted and no disallowance could be made under section 40(a)(ia). It was further argued that even if the provision of section 40(a)(ia) were found applicable, the assessee had paid the entire amount during the year and nothing was found to be outstanding at the end of the year. Therefore, in such cases, provisions of section 40(a)(ia) could not be applied as held by Special Bench of the Tribunal in case of Merilyn Shipping and Transporters vs. Addl. CIT (16 ITR (Trib.) 01). The ld. AR also referred to the amendment made by Finance Act 2012 to section 40(a)(ia) w.e.f. 1.4.2013 as per which in case tax had been paid by the payee, it had to be considered as deemed deduction and payment of tax on the day of furnishing of return of income by the payee . It was further argued that the said amendment was clarificatory in nature and would apply to the pending assessments and, therefore, no tax was required to be deducted in case of the assessee, and thus, no disallowance could be made.
5.4 The ld. DR, on the other hand, supported the orders of authorities below and placed reliance on the findings given in the respective orders.
5.5 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of claim of deduction of Rs. 29.36 lacs on account of share of profit paid to M/s. JSMS for managing the Lokhandawala Branch. Both the authorities below following the judgment of Hon'ble Supreme Court in the case of CIT vs. Panipat Woollen and General Mills Co. Ltd. (103 ITR 66) (supra) have held that arrangement with M/s. JSMS was a joint venture and therefore payment made to M/s. JSMS was not allowable as deduction. However, we are unable to agree with the view taken by the authorities below. We agree with the submission of the ld. AR that the case of CIT vs. Panipat Woollen and General Mills Co. Ltd. (supra), is distinguishable as in that case the agent had also made most of the investments and was sharing both profits and losses whereas in this case, the assessee was only sharing profit with M/s. JSMS who was managing only day to day affairs of the branch whereas policy decisions were taken by the assessee and the entire investments had also been made by the assessee. We, therefore, hold that the arrangement was not a case of joint venture. The authorities below have also disallowed the claim on the ground that the payment made to M/s. JSMS was of the nature of fees for professional services/technical services on which tax was required to be deducted under section 194J and since assessee had not deducted tax at source, claim was not allowable under section 40(a)(ia). We agree with the authorities below that nature of work done by M/s. JSMS was professional or managerial in nature as they were managing day to day work of the branch by providing professional services. Therefore, provisions of Section 194J were applicable. However, the ld. AR for the assessee has brought to our notice a recent decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports vs. ACIT (16 ITR 01), in which case it has been held that the word "payable" used in section 40(a)(ia) has to be given its natural meaning and section 40(a)(ia) would be applicable only to expenditure which is payable as on March 31 of every year and can not be invoked to disallow amount which have already been paid during the previous year. The ld. AR submitted that no amount remained payable on account of M/s. JSMC at the end of the year. Therefore, provision of section 40(a)(ia) were not applicable. We, therefore, following the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports (supra), set aside the order of CIT(A) and allow the claim of the assessee subject to verification of the claim that no amount remained outstanding at the end of the year. We do not consider it necessary to go into other arguments advanced by the ld. AR as the claim has been allowed."
5. Thus, consistent with the view taken by the Tribunal in assessee's own case cited supra, which will apply mutatis mutandis in this year also, we set aside the impugned order passed by the Commissioner (Appeals) and the grounds no.3, as raised by the assessee is treated as allowed.
6. In ground no.4, the assessee has challenged levy of interest under section 220(2) of the Act.
7. The learned Counsel submitted that in this case, the Assessing Officer, while giving effect to the Commissioner (Appeals)'s order, has granted refund to the assessee. therefore, there was no occasion to charge interest under section 220(2) from the date of the original demand notice issued after the order passed under section 143(3) of the Act. Learned Departmental Representative, on the other hand, relied upon the findings of the Commissioner (Appeals) on this score.
8. In the present case, the assessment was completed under section 143(3) on 3rd March 2005, on a total income of Rs. 86,92,280, as against the returned income of Rs. 79,44,284. This assessment order was subject matter of first appeal. After giving effect to the Commissioner (Appeals)'s order, some refund was worked out. Thereafter, the assessment has been made again under section 143(3) r/w section 147 of the Act, vide order dated 24th December 2009. In the demand notice, the Assessing Officer has charged interest under section 220(2) from date of the original assessment order. Once the original demand notice has been dispensed with and fresh demand notice has been raised in view of the order giving effect to the Commissioner (Appeals)'s order wherein instead of demand there was a refund and such an order has attained finality as no second appeal was filed, then interest cannot be levied under section 220(2) from the date of original demand notice. The Assessing Officer has to work out the demand and chargeability of interest under section 220(2), if any, from the demand notice of assessment order passed under section 143(3) r/w section 147. With these observations, we restore this issue back to the file of the Assessing Officer to verify as to whether interest has been charged as per the demand notice in pursuance of assessment order dated 24th December 2009, passed under section 143(3) r/w section 147 or original assessment order dated 23rd February 2005, passed under section 143(3). If interest has been calculated from the due date of demand notice of original assessment order, then the same is not tenable in law. Thus, the Assessing Officer will examine these issues after providing due examination and can also ask the assessee to furnish the details if required. Ground no.4, is treated as partly allowed for statistical purposes.
9. Now coming to the grounds no.1 and 2, which relate to re-opening of the assessment under section 147 of the Act and its validity thereof.
10. Since the other grounds raised in this appeal have been decided in favour of the assessee on merits, therefore, these legal grounds have become academic in nature and no separate adjudication is required. Accordingly, these grounds are treated as dismissed.
12. In the result, assessee's appeal is treated as partly allowed for statistical purposes.
We now take up assessee's appeal ITA no.341/Mum./2011, for assessment year 2003-04.
13. Since the facts and circumstances of grounds no.1, 2, 3 and 4, in this appeal are identical to the grounds no.1, 2, 3 and 4 raised in assessee's appeal in ITA no.340/Mum./2011 for assessment year 2004-05, therefore, the view taken therein will apply here also. Accordingly, we set aside the impugned order passed by the Commissioner (Appeals) and hold that grounds no.1 and 2 are treated as dismissed being academic, ground no.3, is treated as allowed for statistical purposes and ground no.4, is partly treated as allowed for statistical purposes.
15. In the result, assessee's appeal is treated as partly allowed for statistical purposes.
We now take up assessee's appeal in ITA no.342/Mum./2011 for assessment year 2002-03, vide which, the only ground raised by the assessee is disallowance of Rs. 20,09,320, on account of payment made to M/s. J.S. Financial Services.
16. The issue raised in the said ground is identical to the ground no.3 raised in assessee's appeal in ITA no.340/Mum./2011 for assessment year 2004-05, therefore the findings given therein will apply here also. Accordingly, the ground raised by the assessee is allowed.
17. Consistent with the view taken therein, we set aside the impugned order passed by the Commissioner (Appeals) and hold that grounds no.3 is treated as dismissed.
18. In the result, assessee's appeal is treated as allowed.
20. To sum up, assessee's appeal for assessment years 2004-05 and 2003-04 are treated as partly allowed for statistical purposes whereas assessee's appeal in assessment year 2002-03, is treated as allowed.
The order pronounced in the open court on 30th April 2013.