Foreign agent commission and reimbursement of expenditure were not taxable in India and hence, section 195 had no application.

165
Foreign agent commission and reimbursement of expenditure were not taxable in India and hence, section 195 had no application.

Foreign agent commission and reimbursement of expenditure were not taxable in India and hence, section 195 had no application. 

(2018) 62 ITR (Trib) 451 (Cochin)

IN THE ITAT, COCHIN BENCH

GEORGE GEORGE K. (JUDICIAL MEMBER) & MANJUNATHA G. (ACCOUNTANT MEMBER)

Kannan Devan Hills Plantations Co. (P) Ltd. v. Asstt. CIT

ITA Nos. 77, 78, 91, 131, 163 & 164/Coch/2017

A.Y. 2010-11 to 2012-13

4 January, 2018

Depart­ment by: A Dhanaraj, Senior Departmental Representative

ORDER

These are the cross-appeals, directed against the three separate orders of the Commissioner (Appeals)-I, Kochi of different dates. The relevant assessment years are 2010-11, 2011-12 and 2012-13.

2. Since common issues are raised in these appeals and they pertain to the same assessee, they were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.

3. We shall first take up for adjudication the assessee’s appeal in ITA No. 77/Coch/2017.

ITA No. 77/Coch/2017 (assessee’s appeal) assessment year 2010-11

3.1 In the grounds in the memorandum of appeal, two issues are raised namely,

(i) Rejection of the claim for deduction under section 80-IA of the Income Tax Act.

(ii) Disallowance of expenditure relating to cost of cattle keepers. (i) Rejection of claim for deduction under section 80-IA of the Act

3.2 The assessee had claimed deduction under section 80-IA of the Income Tax Act for the income from distribution of electricity. The claim was negative by the assessing officer. The view taken by the assessing officer was confirmed by the Commissioner (Appeals). The Commissioner (Appeals) denied the benefit of deduction under section 80-IA of the Income Tax Act for the reason that the Income Tax Appellate Tribunal in the assessee’s own case for the assessment year 2008-09 had disallowed the claim of the assessee.

3.3 Before us, the learned Authorised Representative submitted that the issue in question is squarely covered in favour of the assessee by the judgment of the Hon’ble High Court of Kerala in the assessee’s own case for the assessment year 2008-09 (ITA No. 48 of 2015, judgment dated 16-11-2017) (Kanan Devan Hills Plantations Company P. Ltd. v. Asst CU (2018) 400 ITR 43 (Ker)). A copy of the judgment of the Hon’ble High Court is placed on record. The learned Departmental Representative was unable to controvert the submission of the learned Authorised Representative.

3.4 We have heard the rival submissions and perused the material on record. The issue in question is squarely covered by the judgment of the Hon’ble jurisdictional High Court in the assessee’s own case for the assess­ment year 2008-09 (supra). Since the facts in the current assessment year are identical to the facts considered by the Hon’ble High Court, respectfully following the judgment of the Hon’ble High Court, we allow ground No. 1 raised in the assessee’s appeal in ITA No. 77/Coch/2017. The assessing officer is directed to compute deduction under section 80-IA of the Act in accordance with law.

(ii) Disallowance of expenditure relating to cost of cattle keepers The brief facts in relation to the above issue are as follows :

The assessee is engaged in the business of growing tea in its estate in Munnar. As a labour welfare measure, in line with the accepted industry practice, the assessee-company maintained cattle owned by the employees under the cattle grazing scheme approved by the Plantation Labour Committee, Kerala. The expenditure relating to the maintenance of cattle was considered as expenditure of tea operation by the assessee. The recov­eries from the employees against such expenditure was disclosed under other income. According to the assessee, since the expenditure is treated as part of tea operation for rule 8 income namely, the minor recoveries relat­ing to the same were also to be treated as rule 8 income. Since the expend­iture was more than the recoveries from the employees of the assessee, the net expenditure was treated as relatable to tea business of the assessee. The assessing officer held that the recoveries from the employees of the asses-see is to be taxed under central income and the expenditure incurred under the scheme is allowable as expenditure relating to tea business.

4.1 On appeal before the first appellate authority, the Commissioner (Appeals) held that the recoveries made from the employees of the assessee and expenditure incurred under the scheme can neither be treated as central income or under tea operations and hence, the net expenses of cattle maintenance was not allowable as business expenditure.

4.2 Aggrieved by the order of the Commissioner (Appeals), the assessee has raised this issue before the Tribunal. It was contended by the learned Authorised Representative that the expenditure incurred is purely a labour welfare measure and is in line with the accepted industry practice. The learned Authorised Representative submitted that since it is a labour welfare measure which is necessary for cultivation of tea, the same needs to be taken as expenditure incurred in the course of oper­ating tea estate. The learned Departmental Representative on the other hand supported the orders of the lower authorities.

4.3 We have heard the rival submissions and perused the material on record. Tea plantation is very labour intensive industry. In order to attract the workers/employees of the assessee to work in its tea estate, the employees were allowed to rear their cattle in the specified areas of the assessee’s estates. To take the cattle for grazing, the assessee had engaged cattle keepers and incurred expenditure. There were minor recoveries from the employees. However, since the cattle keepers were paid more than the recoveries made from the employees, the net expenditure was claimed as deduction under rule 8 from the tea business. Allowing the employees to rear their cattle in the assessee’s estate in order to attract them to work in its estate, is purely a labour welfare measure and the same is in tune with the accepted plantation practice. This labour welfare measure has been approved by the Plantation Labour Committee of Kerala and a copy of the resolution of the Plantation Labour Committee is placed at pages 106 to 115 of the paper book filed by the assessee. On a perusal of the resolution of the Plantation Labour Committee, it is very discernible that the scheme of cattle grazing in various estates is an accepted norm in the plantation industry and it is nothing but a labour welfare measure in order to attract labourers which is otherwise scarce. Since the expenditure incurred on cattle keepers is purely a labour welfare measure which is approved by the Plantation Labour Committee, we are of the view that the expenditure incurred is directly relatable to the tea business of the assessee. Therefore, the same shall be treated as expenditure under rule 8 of the Income Tax Rules. Thus ground No. 2 in ITA No. 77/Coch/2017 is allowed.

4.4 In the result, the appeal filed by the assessee in ITA No. 77/ Coch/2017 is allowed.

ITA Nos. 78 and 91/Coch/2017 (assessee’s appeals): assessment years 2011-12 and 2012-13

5. The only issue raised in these appeals is regarding the disallowance of expenditure relating to the cost of cattle keepers. We had adjudicated this issue in favour of the assessee in ITA No. 77/Coch/2017. Since the facts are identical, for the reasons mentioned at paragraph 4.3 of ITA No. 77/ Coch/2017, we allow this ground of the assessee in ITA Nos. 78 and 91/ Coch/2017.

5.1 In the result, the appeals filed by the assessee in ITA Nos. 78 and 91/Coch/2017 are allowed.

6. The assessee has also raised additional grounds. The additional grounds raised are connected with the appeals filed by the Revenue, except addi­tional ground No. 3 in ITA No. 77/Coch/2017. Since the additional grounds are connected with the Departmental appeals, they shall be adju­dicated after the Departmental appeals are adjudicated, except additional ground No. 3 in ITA No. 77/Coch/2017. The additional ground No. 3 in ITA No. 77/Coch/2017 reads as follows :–

“3. The learned Commissioner (Appeals) erred in enhancing the assessment without giving an opportunity to the appellant under section 251(2) of the Income Tax Act.”

6.1 The above additional ground raised is connected with the disal­lowance of expenditure relating to the cost of cattle keepers. We have already allowed the assessee’s appeal on this issue. Thus, additional ground No. 3 raised in ITA No. 77/Coch/2017 has become mfructuous and the same is dismissed as infructuous.

7. We shall now adjudicate the Revenue’s appeals. We shall first take up for adjudication the Revenue’s appeal in ITA No. 131/Coch/2017.

ITA No. 131/Coch/2017 (Revenue’s appeal): assessment year 2010-11)

7.1 The first issue is with regard to the disallowance of the claim under section 10(30) of the Income Tax Act for the subsidy received from the Tea Board of India taxed 100 per cent, under the Income Tax Act.

7.2 The brief facts in relation to the above issue are as follows : The subsidy given by the Tea Board was treated as exempt under sec­tion 10(30) of the Income Tax Act. Alternatively, it was contended before the assessing officer that the subsidy is to be treated as capital receipt. The assessing officer disallowed the claim of the assessee stating that the subsidy scheme details were not notified under section 10(30) of the Act and hence, was not eligible for the claim under section 10(30) of the Act.

7.3 Aggrieved by the disallowance of the claim made by the assessee, an appeal was preferred to the first appellate authority. The Commissioner (Appeals) held that the term “subsidy” notified in section 10(30) of the Act is only directive and not mandatory and therefore, the assessee was entitled to exemption under section 10(30) of the Act in » respect of the subsidy received from the Tea Board. The alternative ground of the assessee to treat the subsidy received from the Tea Board as capital receipt was not adjudicated by the Commissioner (Appeals).

7.4 Aggrieved by the order of the Commissioner (Appeals), the Revenue has filed the present appeal before us.

7.5 We have heard the rival submissions and perused the material on record. The assessee is in the business of growing tea in its estate in Munnar. The Tea Board which is coming under the Ministry of Commerce, Government of India had given subsidy to the assessee for replanting, replacement planting and rejuvenation planting as per the scheme notified by the Central Government through its nodal agency. The Tea Board every year gives subsidy for the abovesaid purpose but the name of the schemes would be different. During the relevant year, the subsidy received was called special purpose tea fund scheme. A copy of the scheme is enclosed in the paper book filed by the assessee (page Nos. 26 to 56). The Commissioner (Appeals), after threadbare examination of the scheme of the Tea Board providing the subsidy for replanting, replace­ ment planting and rejuvenation planting, gave a categoric finding that the assessee is entitled to the benefit of the claim under section 10(30) of the Income Tax Act (refer pages 34 to 41 of the Commissioner (Appeals) order for the assessment year 2010-11). The relevant finding of the Commissioner (Appeals) at page 37 of the impugned order for the assessment year 2010-11 is reproduced below :–

“The text of section 10(30) of the Act states ‘as the Central Government may, by notification in the Official Gazette, specify”, which means that if there is no specification, then the substantive text of the statutory provisions would apply. In the instant case of the appellant therefore :–

(i) Since the replantation subsidy scheme of the Tea Board has been notified its amended version with effect from 1st January, 1972, and no further amendments have been notified thereafter;

(ii) Since there is no requirement (in view of the use of the word ‘as’ in the manner defined and interpreted by the Hon’ble Supreme Court above) that such notification is a mandatory requirement to render the statutory provisions of section 10(30) operational;

(iii) Since even prior to 1972, such notification was not made for certain periods such as from 13-5-1970 to 31-12-1971; and (iv) Since the clarification and confirmation provided by the Tea Board clearly shows that it was for the Tea Board to trigger the Government into making the necessary notification and as there was no fundamental change in the nature and essence of the qualifying activities of or replacement, replantation, rejuvenation, etc. in the SPTF Scheme, the Tea Board did not consider it necessary to make a ‘separate Gazette Notification in lieu of the existing Gazette notifi­cation’ (to employ the phraseology of the Tea Board).”

7.6 We do not see any infirmity in the finding of the Commissioner of income-tax (Appeals) to take a contrary view. Even if the provisions of section 10(30) of the Income Tax Act is not applicable, since the subsidy is even for replantation, replacement planting and rejuvenation planting of he tea bushes, it can only be termed as a capital receipt and not as a evenue receipt. For the aforesaid reasons, we confirm the order of the Commissioner (Appeals) and reject the ground No. 1 raised by the Revenue in ITA No. 131/Coch/2017.

The second issue that is raised in the Revenue’s appeal in ITA No. L31/Coch/2017is additions made by the assessing officer towards disal-owance of expenditure incurred in relation to exempt income under section 14A read with rule 8D of the Income Tax Rules, 1962. The assessing officer made additions towards expenditure in relation to exempt : ncome under section 14A by invoking rule 8D(2)(ii) and (iii) on the ground hat the assessee has made huge investments in shares and securities which yield exempt income. However, no disallowance has been made owards expenditure incurred in relation to exempt income. According to (he assessing officer, from the assessment year 2008-09 onwards disallowance of expenditure incurred in relation to exempt income is mandatory ind such disallowance should be worked out as per the prescribed method provided under rule 8D(2) of the Income Tax Rules, 1962. Accordingly, the 1 assessing officer has worked out the disallowance in respect of interest expenditure under rule 8D(2)(ii) and other expenses at the rate of 0.5 per cent, of the average value of investment under rule 8D(2)(iii) of the Income Tax Rules, 1962. It is the contention of the assessee that its investments in shares and securities is out of its own funds and no part of interest bearing funds has been utilised for investment which yield exempt income. The assessee further submitted that the company having its own funds in the form of shares capital and reserves which exceeds investment in shares and securities which yield exempt income and in such circumstances a general presumption is drawn that the investment in shares and securities is out of own funds even though the assessee is having borrowed funds. The assessee further contended that it has borrowed term loans from various banks and financial institutions for the purpose of acquisition of business as well as capital assets. Therefore, unless there is a direct nexus 9 between borrowed funds and investment in share and securities, interest cannot be disallowed by invoking rule 8D(2)(ii) of the Income Tax Rules, 1962. The assessee further contended that in respect of disallowance of expenses under rule 8D(2)(iii), the investments are made in previous finan­cial years and also the assessee has not incurred any specific expenditure, which is having direct nexus with exempt income. Therefore, the disal­lowance of expenditure under rule 8D(2)(iii) is unwarranted. Though it has incurred certain common expenses under various administrative and general expenses, all expenses are for its regular business activities and therefore, no part of expenditure can be attributable to the exempt income.

8.1 We have heard both the parties and considered the material on record. The assessing officer disallowed expenditure incurred in relation to exempt income under section 14A by invoking rule 8D(2)(ii) and 8D(2)(iii) of the Income Tax Rules, 1962, in respect of interest expenditure and other expenses. The assessing officer has worked out the disallow­ance of interest debited in the profit and loss account by invoking rule 8D(2)(ii). Similarly, the assessing officer has worked out the disallowance of expenditure at the rate of 0.5 per cent, of average value of investment. According to the assessing officer, the disallowances contemplated under section 14A is mandatory in nature with effect from assessment year 2008-09 and such disallowances shall be worked out as per the prescribed method provided under rule 8D(2)(ii). The assessing officer has relied upon various judicial pronouncements including the decision of the Hon’ble Supreme Court in the case of CIT v. Rajendm Prasad Moody (1978) 115 ITR 519 (SC) to hold that even if no dividend income is earned, the provision would still be applicable. It is the contention of the assessee that the assessing officer was erred in disallowing the expenditure incurred in relation to exempt income under section 14A by invoking rule 8D(ii) without establishing the nexus between the expenditure incurred and exempt income. The assessee further contended that its investments are covered out of its own interest-free funds in the form of share capital and reserves and no part of interest bearing funds has been used in invest­ment which yield exempt income, which is evident from the fact that its interest expense relates to term loans availed offer taking over business as well as bank overdrafts which is used for working capital requirements of the company. The assessee further contended that without there being any observation with regard to the nexus between the interest payment and investment in shares, disallowance of interest paid on regular term loans under section 14A by invoking rule 8D is incorrect.

8.2 Having considered both the sides, we find merits in the conten­tion of the assessee for the reason that the assessee has demonstrated with evidence that no part of interest bearing funds has been used to make investment in shares which yield exempt income. The assessing officer has not brought on record any reasons for disallowing expenditure incurred by the assessee on term loan and working capital under section 14A by invoking rule 8D(2)(ii) of the Income Tax Rules, 1962. On the other hand, the assessee has categorically proved that its interest expenditure is not relatable to exempt income. Therefore, we are of the view that the assessing officer was incorrect in disallowing interest under section 14A by invoking rule 8D(2)(ii) of the Income Tax Rules, 1962. The Commissioner (Appeals), after considering the relevant submission, has rightly deleted the additions made by the assessing officer towards disallowance of interest.

8.3 In so far as the disallowance of administrative and general expenses under rule 8D(2)(iii) is concerned, the assessee claims that it did not incur any expenditure for earning exempt income. The assessee further contended that though it has incurred certain expenses under general administrative expenses, such expenditure are directly relatable to its busi­ness activities. Therefore, the assessing officer was incorrect in disallowing the expenses under rule 8D(2)(iii) without arriving at a satisfaction that there is a direct nexus between the expenses incurred by the assessee and the exempt income. We find no merits in the argument of the assessee for the reason that when there is substantial investment in shares which yield exempt income, possibility for incurring certain general and administrative expenses attributable to investment in shares and securities which yield exempt income cannot be ruled out. Though the assessee claims to have not incurred any specific expenses, it is abundantly clear that the assessee has incurred various administrative and general expenses which are in common nature. Therefore, we are of the view that the assessing officer was right in computing the disallowance towards expenses incurred in relation to exempt income by invoking rule 8D(2)(iii). We further observed that though the assessing officer was right in disallowing the expenses under rule 8D(2)(iii), disallowance contemplated under section 14A can in any case swallow the entire exempt income earned by the assessee. The window for disallowance for invoking the provisions of section 14A is only to the extent of disallowing expenditure incurred by the assessee in relation to the exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount. In other words, the disallowance contemplated under section 14A shall not exceed exempt income earned by the assessee. On perusal of the details available on record, we find that the assessee has earned exempt income of Rs. 55,00,000. The disallowance worked out by the assessing officer under rule 8D(2)(iii) at the rate of 0.5 per cent, of average value of investment works out to Rs. 2,27,440. There­fore, we are of the view that the disallowance worked out by the assessing officer under rule 8D(2)(iii) is less than the exempt income earned by the assessee for the relevant period and hence we are of the view that the assessing officer was right in disallowing the expenditure at the rate of 0.5 per cent, of the average value of investment. In any case, if the disallow­ance worked out by the assessing officer is in excess of exempt income earned by the assessee, such disallowance should be restricted to exempt income earned for the relevant financial year. The Commissioner (Appeals) without appreciating the fact has simply deleted the addition made by the assessing officer towards disallowance of expend­iture under rule 8D(2)(iii) of the Income Tax Rules, 1962. Therefore, we reverse the finding of the Commissioner (Appeals) and uphold the additions made by the assessing officer towards disallowance of expenditure at the rate of 0.5 per cent, of average value of investment under rule 8D(2)(iii) subject to our observations that such disallowance shall not exceed exempt income earned by the assessee for the relevant financial years. Accordingly, the ground No. 2 raised by the Revenue in ITA No. 131/Coch/2017 is partly allowed.

The third issue that is raised in the Revenue’s appeal in ITA No. 131/ Coch/2017 is regarding computation of profit on sale of green leaves.

9.1 The brief facts in relation to the above issue are as follows : Profit on sale of green leaves is not taxable under the Income Tax Act, 1961 and is taxable only under the Kerala Agricultural Income Tax Act. The difference between the profit on sale of green leaves as per the cost audit report and as per the return of income filed by the assessee was treated as central income by the assessing officer. The Commissioner (Appeals), following the order of the Cochin Bench of the Income Tax Appellate Tribunal, in the assessee’s own case in ITA No. 335/Coch/2014 dated 14-1-2015 for the assessment year 2009-10, directed the assessing officer to delete the adjustment made by adding differential amount to the Central income.

9.2 Aggrieved by the order of the Commissioner (Appeals), the Revenue has filed the present appeal before the Tribunal.

9.3 We have heard the rival submissions and perused the material on record. A similar addition was made to the Central income in the assessee’s own case for the preceding assessment year, namely assessment year 2009- 10 which was the subject matter of appeal before the Income Tax Appellate Tribunal, Cochin Bench in ITA No. 335/Coch/2014 dated 14-1-2015. While giving effect to the Income Tax Appellate Tribunal order, the assessing officer deleted the addition made for the assessment year 2009- 10 on account of cost audit report driven profit differential on the sale of green leaves. Following the above order of the Income Tax Appellate Tribunal in the assessee’s own case for the assessment year 2009-10 (supra), the Commissioner (Appeals) had deleted the addi­tion. Therefore, we see no reason to interfere with the order of the Commissioner (Appeals) and we confirm the same. Thus ground No. 3 raised by the Revenue in ITA No. 131/C/2017 is dismissed.

10. The fourth issue raised in the Revenue’s appeal is regarding taxation of income from sale of import license.

10.1 The brief facts in relation to the above issue are as follows :

On export of tea leaves, the assessee is entitled to certain benefits such as duty drawback, import licences etc. The income from the sale of import licence received on account of export of tea was claimed by the assessee to be inextricably linked to tea business and hence is to be treated as taxable under rule 8 of Income Tax Rules. The assessing officer treated such income as taxable under Central income. The Commissioner (Appeals) following the judgment of the Hon’ble High Court of Guwahati in the case of McLeod Russel India Ltd. v. CIT (2013) 260 CTR (Gauhati) 337 deleted the addition made by the assessing officer.

10.2 Aggrieved by the order of the Commissioner (Appeals), the Revenue has filed the present appeal before the Tribunal.

10.3 We have heard the rival submissions and perused the material available on record. The import licences were obtained by the assessee-company on account of a scheme for promoting tea exports. The income from sale of import licences received on account of export of tea, is an inte­gral part of the plantation operations of the company. The assessee-company undertakes exports taking into consideration the import licence benefits. Therefore the import licence benefits are clearly part of the tea income. The assessee-company has not claimed the income as exempt income (agricultural income) but as a part of the combined operation and hence the Commissioner (Appeals) was correct in treating the said income as tea income as per rule 8. Thus ground No. 4 of the Revenue’s appeal in ITA No. 131/Coch/2017 is allowed.

The fifth issue that is raised in the Revenue’s appeal is with regard to the taxability of miscellaneous income.

11.1 The brief facts in relation to the above issue are as follows :

Certain items of miscellaneous income which were an integral part of the plantation operations of the assessee-company were treated as central income by the assessing officer on the ground that the said income is not derived from tea operations. The Commissioner (Appeals) allowed the claim of the assessee and held that the income/recoveries should be treated as income from tea operations.

11.2 The details of miscellaneous incomes received which are treated by the assessee as tea income are as follows :–

(i) Fixed management fee income for management of estates of Tata Global Beverages Ltd.

(ii) Service charge for system support to Tata Global Beverages Ltd.

(iii) Income from tea and soil analysis

(iv) Scrap sales

(v) Miscellaneous income from electricity

(vi) Other miscellaneous income.

11.3 According to the assessee, the description of the above incomes are as follows :–

(i) Fixed management fee is towards recovery of expenses incurred under the business. Since the expenses are considered under tea business, its recovery should also be under tea business. Variable management fee is correctly taken under central income by the appellant.

(ii) Software and hardware maintenance support is given to TGBL establishments in Munnar. This is towards reimbursement of tea business expenses hence recovery should also be under tea business.

(iii) Income arising from R&D Lab attached to plantation operations for rendering services to TGBL

(iv) In the course of tea operations of the company large quantity of scrap materials arise from the field and factory operations of the company especially of stores and materials consumed in tea operations and manu­facture. Therefore cost of such stores/materials was borne by tea operations and treated as expenses. Being a recovery of such items it is to be treated as tea business.

(v) Income from electricity operations by way of penalties for delayed payments, replacement of wires etc. Included in income from elec­tricity operations and treated as combined income.

(vi) Other sundry receipts which are connected to its main business being tea.

11.4 We have heard the rival submissions and perused the material on record. The Commissioner (Appeals), after considering each of the incomes received by the assessee had held that these are inci­dental and directly connected with the operation of tea business and the same is to be treated as income under rule 8 of the Income Tax Rules. The finding of the Commissioner (Appeals) which are from pages 51 to 54 for the assessment year 2010-11 are very categoric and no interference is called for and we confirm the same. Thus ground No. 5 raised by the Revenue in ITA No. 131/Coch/2017 is dismissed.

The sixth issue that is raised for our consideration is with regard to 12 disallowance of foreign agents commission and reimbursement of expenses for non-deduction of tax at source.

12.1 The brief facts in relation to the above issue are as follows :–

In order to obtain exports, foreign agents were paid commission. It was contended by the assessee that the commission payments to foreign agents were not taxable in India and hence, no tax was deducted at source. The assessing officer however held that tax ought to have been deducted under section 195 of the Income Tax Act and having not deducted tax at source, the expenditure claimed was disallowed by invoking the provisions of section 40(a) (i) of the Act. On appeal, the Commissioner (Appeals) held that the commission was not taxable in India and hence provisions of section 195 of the Act does not have application. (Refer pages 54 to 62 of the Commissioner (Appeals) order).

12.2. Aggrieved by the order of the Commissioner (Appeals), the Revenue has filed the present appeal before us.

12.3 We have heard the rival submissions and perused the material available on record. A perusal of the expenditure incurred by the assessee, we notice that these are payments made as reimbursement of expenditure incurred by the foreign agents plus their commission. The foreign agent commission and reimbursement of expenditure are not taxable in India and hence, the provisions of section 195 of the Income Tax Act have no appli­cation. In taking the above view, we refer to the following judicial pronouncements:-

(i) Homefashions v. Asst. CIT (ITA No. 52/Coch/2015 dated 10-12-2015, ITAT-Cochin)

(ii) CEAT International S. A. v. CIT (1999J 237 ITR 859 (Bom)

(iii) CIT v. Toshoku Ltd. (1980) 125 ITR 525 (SC)

(iv) Armayesh Global v. Asst. CIT (2012) 51 SOT 564 (Mumbai-ITAT)

(v) Deputy CIT v. Ardeshi B. Cursetjee and Sons Ltd. (2008) 7 DTR (AT) 51 (Mum).

12.4 For the aforesaid reasons, we confirm the order of the Commissioner (Appeals) on this issue. Thus ground No. 6 raised by the Revenue in ITA No. 131/Coch/2017 is dismissed.

The seventh issue is with regard to the taxability of income from elec­tricity operations. This issue is connected with the claim of deduction under section 80-IA which we have already decided in the assessee’s appeal in ITA No. 77/Coch/2017. We have held that electricity distri­bution is a separate undertaking and therefore the claim of the assessee under section 80-IA is to be allowed. This finding is based on the judgment of the Hon’ble jurisdictional High Court (supra). Thus ground No. 7 raised by the Revenue has been rendered infructuous and the same is dismissed as infructuous. In the result, the appeal of the Revenue in ITA No. 131/ Coch/2017 is partly allowed as indicated above.

The issues raised in the Revenue’s appeals in ITA Nos. 163 and 164/ Coch/2017 are identical to the issues raised in ITA No. 131/Coch/2017. In ITA No. 163/Coch/2017, the issues raised are as follows :–

(1) Disallowance of claim under section 10(30) for subsidy received from the Tea Board of India and taxed 100 per cent, under Income Tax Act.

(2) Disallowance under section 14A.

(3) Computation of profit on sale of green leaves.

(4) Taxation of income from sale of import licence.

(5) Taxability of miscellaneous income.

(6) Disallowance of foreign agents commission and expense reim­bursement for non-deduction of tax.

14.1 In ITA No. 164/Coch/2017, the following issues are raised :

(i) Disallowance of claim under section 10(30) for subsidy received from the Tea Board of India and taxed 100 per cent, under the Income Tax Act.

(ii) Disallowance under section 14A.

(iii) Taxation of income from sale of import licence.

(iv) Taxability of miscellaneous income.

(v) Disallowance of foreign agents commission and expense reim­bursement for non-deduction of tax.

14.2 Since the issues raised in the Revenue’s appeals in ITA No. 163/Coch/2017 and 164/Coch/2017 are identical to the issues raised in ITA No. 131/Coch/2017, our reasoning/finding in ITA No. 131/Coch/2017, will hold good for ITA Nos. 163/Coch/2017 and 164/Coch/2017. It is ordered accordingly.

14.3 In the result, the appeals filed by the Revenue in ITA Nos. 131, 163 and 164/Coch/2017 are partly allowed.

As regards the additional ground raised in the assessee’s appeals in ITA Nos. 77, 78 and 91/Coch/2017, we find that apart from the additional ground No. 3 in ITA No. 77/Coch/2017, the assessee has raised only two issues namely,–

(i) The Tea Board subsidy should be treated as capital subsidy in the event of the assessee’s claim under section 10(30) of the Income Tax Act is not allowed.

(ii) The disallowance under rule 8D read with section 14A of the Act may be restricted to Rs. 2,27,440 instead of Rs. 22,74,400 made by the assessing officer.

15.1 As regards the claim of receipt of the Tea Board subsidy, whether it should be treated as capital receipt, we have held that the assessee is entitled to the benefit of deduction under section 10(30) of the Income Tax Act. Since we have decided that the assessee is entitled to the benefit of deduction under section 10(30) of the Act, the alternate plea raised, namely Tea Board subsidy should be taken as capital receipt, has been rendered infructuous and dismiss the additional ground raised as dismissed.

15.2 As regards the claim of restricting the disallowance by invoking the provisions of rule 8D read with section 14A of the Act, we have restricted the disallowance to Rs. 2,27,440 during the relevant assessment year 2010-11 from Rs. 22,74,440. Hence this additional ground raised by the assessee has also been rendered infructuous and the same is dismissed as infructuous.

In the result, the appeals filed by the assessee are allowed and the appeals filed by the Revenue are partly allowed as indicated above.

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