Sumitomo Corporation Vs DCIT (ITAT Delhi)
Conclusion: Interest was payable under Section 234C on default in payment of advance tax installment on returned income, and not on assessed income.
Held: AO had levied interest u/s 234C of Rs. 76,23,106/-. Assessee submitted that the interest under Section 234C was leviable on default in payment of advance tax installment on returned income and not on assessed income. Assessee submitted that interest u/s 234C was levied only when the assessee failed to deposit the tax based upon its return of income and as per the return of income tax payable aggregated to Rs. 6,92,78,828 which was duly discharged by TDS; on what basis AO had levied the tax u/s 234C. Thus, AO had erred in levying interest under section 234C on tax payable on the assessed income. It was held that the interest under Section 234C was leviable on default in payment of advance tax installment on returned income, but in the present case it was done on assessed income. Thus, when there was no default on the part of assessee in payment of advance tax as per returned income, such interest levied was not justified by AO. The interest u/s 234C was levied only when assessee failed to deposit the tax based upon its return of income. But in the present case, as per the return of income tax payable aggregated to Rs. 6,92,78,828 which was duly discharged by TDS.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order dated 31/1/2017 passed by DCIT, Circle (1)(2), International Taxation, New Delhi u/s 143(3) read with Section 144C (13) of the Income Tax, 1961 for Assessment Year 20 13-14.
2. The grounds of appeal are as under:-
Based on the facts and circumstances of the case, the Appellant respectfully submits:
1. That the learned Assessing Officer (Id AO) has erred both on facts and in law, in computing the total income of the Appellant company at Rs.73,14,22,028/-, against an aggregate total income declared by assessee amounting to Rs. 69,26,60,776/-. The addition made of Rs. 3,81,61,252/- is highly misconceived and the Hon’ble Dispute Resolution Panel (Ld DRP) has also erred in not directing the said sum to be excluded.
2. That the Ld AO/DRP has failed to appreciate that, the Appellant is a tax resident of Japan and is required to be assessed in accordance with the provisions of Double Tax Avoidance Agreement between India and Japan and the Appellant, since had no Permanent Establishment (PE) in India for supply made to Maruti Suzuki India Limited (MSIL) no income could be held to be taxable in India.
2.1 That the Ld AO/DRP has erred in making addition of Rs. 2,36,88,712/- in respect of an amount stated to be an income attributable for supplies made by Appellant to MSIL (i.e. the estimated and assumed sum) from Japan. The learned AO, has erred in not appreciating that such income, as has been held to be attributable on the supplies made, since was not attributable to its permanent establishment has been misconceived and the addition so made be thus held as untenable which addition deserves to be deleted.
2.2 That the Ld AO/DRP has erred in holding that the alleged profit of supplies of equipment by the Appellant to MSIL are taxable in India despite the fact that title of equipment had passed in Japan and supplies had also been made in Japan and not in India and thus, no income had accrued to the Appellant in India.
2.3 That the Ld AO/DRP has erred in holding, that the Appellant has a PE in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan (‘DTAA’ or ‘treaty’) and such PE was involved in port clearance, local transportation, commissioning and testing of equipment in India. The aforesaid findings are based on no material whatsoever.
2.4 That the Ld AO/DRP has erred in holding, without any basis, that the negotiation and signing of the contract took place in India and thus PE was established without considering the fact that even the contracts were signed outside India and no negotiation took place in India in respect of such offshore supply.
without any basis, that the Appellant has entered into integrated contract for supply of equipment and commissioning, and PE was established to undertake the contractual obligation. In-fact the appellant did not carry out any such activity in India in respect of such offshore supplies. Thus, the allegation of the Ld AO/DRP is totally baseless.
2.6 Without prejudice to above, the Ld AO/DRP has erred in attributing 35% of the alleged profit in respect of offshore supplies to the alleged PE of the Appellant in India without seeing actual facts of the appellant, such a conclusion is arbitrary and is untenable.
2.7 That the Ld. AO/DRP has failed to appreciate that the appellant has been contending since AY 1998-99 that no income from offshore supply accrues to it in India in view of section 5 and as such there was absolutely no justification to make any attribution out of its global profit and that too 35% of its global profit overlooking geographical location and other attending facts.
2.8 Without prejudice to above that offshore supply is not taxable in India, the authorities below have erred in not allowing set-off of the brought forward business losses of Rs. 2,36,88,712 against income from supply of equipment to MSIL and further carrying forward the balance business loss Rs. 1,85,52,164.
2.8.1 That the Ld. AO has further erred in not recording any finding and not allowing the setoff of claim of business losses and thus, there was no justification not to have set off business loss and to have further carried forward balance amount Rs. 1,85,52,164.
3. That the Ld. AO/DRP has grossly erred in adopting the amount ofcapital gain accrued to the appellant at Rs. 7,31,67,675 as against declared capital gain of Rs. 90,93,355 as declared in return of income, thus, enhancing the income by Rs. 6,40,74,320.
3.1 That the Ld. AO though computed the capital gain of Rs. 7,31,67,675 has erred in adopting the said sum at Rs. 1,50,72,540 which was really the tax calculated on such income.
3.2 That the Ld. AO/DRP erred in computing capital gain on sale of equity shares of Indian company, SML Isuzu Ltd by considering fair market value of shares as Rs. 393 per share as per rule 11 UA (1) (c) (ii) instead of Rs.
383.43 per share being the agreed sale price as per the share purchase agreement entered between the appellant and Isuzu Motors Ltd, Japan without any basis or any provision under the Act thus, enhancing the sales consideration at Rs. 62,56,09,233 instead of Rs. 61,03,74,932.
3.3 That the Ld AO/DRP erred in computing capital gain by considering total sales consideration at JPY 1,01,34,40,086 instead of JPY 90,94,58,648 being the sale consideration already agreed vide the sale purchase agreement entered between the assessee and Isuzu Motors Ltd, Japan thus, enhancing the sales consideration by JPY 10,39,81,438.
3.4 Without prejudice above, the Ld. AO/DRP has erred in adopting incorrect the conversion rate (from INR to JPY) for sales consideration resulted into higher addition in capital gain.
3.5 Without prejudice above, the Ld. AO/DRP as provided under statute was required to adopt Telegraphic Transfer Buying Rate to convert the capital gain (from JPY to INR) whereas he has adopted incorrect rate as per rule 115A.
3.6 Without prejudice to above, the Ld. AO/DRP erred in not allowing the set off of the brought forward long term capital losses of Rs. 7,31,67,675 to the appellant against the capital gain so computed and further carrying forward the balance capital loss.
4. That the DRP has erred in passing a non-speaking order while dismissing the grounds relating to capital gain referred in para 3.2 to 3.5.
5. That the learned AO has erroneously stated that the reasons mentioned in the order may be treated as satisfactory for initiating penalty proceedings under section 271 (1 )(c) of the Act for furnishing inaccurate particulars of income and concealment of particular of income with respect to the additions made.
6. That the Ld. AO has erred in not allowing full credit of TDS as claimed by appellant at the time of filing return of income. The credit of TDS allowed at Rs. 4,58,48,500 instead of Rs. 7,11,65,180 is based on no justification, thus, the AO be directed to give entire credit of Rs. 7,1 1,65,180.
7. That the Ld AO has further erred in levying interest u/s 234B of the Act of Rs. 1,67,89,416
8. That the Ld AO has further erred in levying interest 234C of the Act of Rs. 76,23,106.
The above grounds are independent and without prejudice to each other.”
3. The assessee Company is a company incorporated as per the rules of Japan, and is engaged in the business of supply of equipments for various projects and also executed erection and commissioning of equipment at the various project sites in India. The assessee filed its return of income in India thereby declaring an income of Rs.45,48,94,340/-. Subsequently, the assessee revised return on 27/3/2015 declaring taxable income of Rs.69,26,60,857/-. In the revised return of income, the assessee offered Rs.23,71,30,394/- being supervisory fees which had not been earlier included on the ground that it has no supervisory PE in India and the PE received being integral part of supply is not taxable in India. The Hon’ble Delhi High Court vide its order dated 16/11/2015 in Assessment Year 1992-93 to 1996-97 accepted the contention of the assessee and held that the assessee did not have any PE for supervisory activities and income is taxable under Article 12(2) of the India- Japan DTAA. In such circumstances to maintain this and to avoid unending litigation, the assessee company offered the said sum of Rs.23.7 1 crore to tax under Article 12(2) of the DTAA. The return was selected for scrutiny assessment. The Assessing Officer issued a draft assessment order dated 18/3/20 16 under the provisions of Section 144C of the Income Tax Act thereby proposing to make following variation to the return income of the assessee:-
