The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) recently ruled in favour of businesses with a gross turnover not exceeding Rs. 250 Crores, allowing them to avail a concessional tax rate of 25%.
The Revenue’s appeal for the Assessment Year ( A.Y ) 2019-20 revolved around determining the applicable tax rate for domestic companies, specifically whether it should be 25% or 30%. According to the current regulations, the tax rate for domestic companies during the A.Y. 2019-20 is fixed at 25% provided their gross turnover in the preceding year does not surpass Rs. 250 Crores. However, if gross turnover exceeds Rs.250 Crs. in the previous year, then 30% tax rate applies.
The assessee has computed tax liability by applying a tax rate of 25% on the ground that its turnover/gross receipts from business for AY 2017-18 is less than Rs.250 Crs. Conversely, the Assessing Officer ( AO ) computed tax liability of the assessee by applying tax rate of 30% due to the gross receipts/turnover of the assessee for AY 2017-18 exceeding Rs.250 Crs.
The Commissioner of Income Tax [CIT (A)] noted that excluding other income, the gross turnover or receipts from the business activities of the assessee for the A.Y. 2017-18 remained below Rs. 250 Crores. Thus, the assessee appropriately opted for the concessional tax rate of 25%.
Mr.Sajit Kumar, the counsel representing revenue, cited the financial statements of the assessee for the A.Y. 2017-18. It was noted that according to the declared financial results, the turnover of the assessee exceeded Rs. 250 Crores. This was evident from the financial statements which showed a business turnover amounted to Rs. 173.30 Crores, along with an additional, Rs. 235.51 Crores reported under ‘other income’.
It was argued that to qualify for the 25% concessional rate of tax, the Income Tax Act, 1961 specified that the total turnover or gross receipts should not exceed Rs. 250 Crores. In this particular case, when considering the gross receipts of the assessee, including other income, it surpassed the Rs. 250 Crores threshold. Hence, it was argued that the assessee should have been liable to the 30% tax rate.
Mr Representing the assessee, the Counsel Mr. Ananthan supported the decision made by the CIT(A). It was emphasized that there was no dispute regarding the Revenue from operations for the assessment year 2017-18, which amounted to Rs. 173.30 Crores.
Additionally, it was highlighted that there was an agreement regarding the reporting of ‘other income’ amounting to Rs. 235.50 Crores by the assessee. This other income comprised earnings from guarantee commission, fair value gains on financial instruments, and gains on the extinguishment of financial liabilities.
The counsel asserted that excluding these three specific items mentioned above from other income would result in the total receipts, as considered by the AO, including other income, not surpassing Rs. 250 Crores. Therefore, the argument that turnover exceeded Rs. 250 Crores for the application of a higher tax rate was deemed invalid.
The tribunal thoroughly examined the audited financials of the assessee for the assessment year 2017-18 and found no discrepancies. It was confirmed that the assessee reported gross revenue from operations amounting to Rs. 173.30 Crores, which fell below the threshold for qualifying for a concessional tax rate.
The coram of Manomohandas ( Judicial member) and Manjunatha G. ( Accountant member) concluded that after excluding these three specific items, the gross turnover or gross receipts of the assessee, inclduing other income, did not surpass Rs. 250 Crores. Therefore, the bench determined that the assessee has accurately calculated their tax liability by applying the 25% concessional rate of tax.
Accordingly, the ITAT upheld the findings of the CIT (A) and dismissed the appeal filed by the Revenue.
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