TVS MOTOR COMPANY LTD Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) These appeals by the assessee are directed against the common order passed by the Income Tax Appellate Tribunal Bench 'C', Chennai in ITA.Nos.1548, 1549, 284, 285 & 286/MDS/03, for the assessment years 2003-04, 2002-03 respectively.

(2.) The common issue raised before the Tribunal relates to the applicability of grossing up principle in the context of order passed under Section 201 read with Section 201(1A) of the Income Tax Act, 1961, (hereinafter referred to as the "Act"). Before the Tribunal, the counsel for the assessee submitted that the issue is covered against the assessee by the decision of the Tribunal in ITA Nos.585, 1550, & 1553/MDS/2003, in the case of M/s.Lakshmi Auto Components Ltd., dated 209.2006. The Tribunal by the impugned order, following its earlier decision, dismissed the appeals.

(3.) The assessee is engaged in the business of manufacture of auto-mobile parts. It entered into an agreement with the University of Warwick, UK for providing technical services. The assessee remitted fees for technical services to the said university and as per the agreement with the University, tax has to be borne by the assessee and accordingly, the assessee paid tax at 15% on the amount remitted to UK by adopting the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and UK. The Assessing Officer held that under Section 195A, where tax chargeable on any income is borne by the person by whom the income is payable, then the purpose of deduction of tax on such income should be increased to such amount as could, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable. It was pointed out that the assessee had made remittance of the amount of Rs. 1,27,53,400/- (2002-03) without grossing up for the purpose of determining the tax to be deducted. Therefore, it was held that there is a short deduction of tax, which amounts to Rs. 3,37,590/-. Further, the Assessing Officer referred to Section 201(1) of the Act and stated if any such person does not deduct or after deducting, fails to pay the tax as required by or under the Act, he shall be deemed to be the assessee in default in respect of tax. Further, by referring to Section 201(1A) of the Act, it was stated that if any such person does not deduct or fails to pay the tax as required by or under the Act, he shall be liable to pay simple interest at 15%, on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Accordingly, an order under Section 201(1) and 201(1A) of the Act was issued and an amount of Rs. 3,37,590/- towards tax and Rs. 16,880/- towards interest was demanded. This was accompanied by a demand notice under Section 156 of the Act. The assessee being aggrieved by the order passed by the Assessing Officer under Section 201(1) and 201(1A) of the Act, preferred appeal before the Commissioner of Income Tax (Appeals)-XI, [CIT (A)]. Before the CIT (A), the assessee contended that it remitted fee for technical services to the University of Warwick, U.K., and as per the terms of agreement, the tax was borne by the assessee and tax to be deducted at source is governed by the provisions of the DTAA with these countries and the maximum tax payable is the percentage of gross receipts of fees for technical services or royalty payable. By referring to Section 90 of the Act, it was stated that where DTAA exists, it will override the provisions of the Act and the rates of tax would be the rate in force under the Annual Finance Act or DTAA rates whichever is more beneficial to the assessee. The assessee referred to circular No.333, dated 02.04.1982, issued by the Central Board of Direct Taxes (CBDT), which provides that where a DTAA provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions of the Income Tax Act. With the above submissions, the assessee prayed for setting aside the order passed under Section 201(1) & 201(1A) of the Act.