Zuha Leathers P Ltd., CHENNAI V. ACIT, CHENNAI

CO 93/CHNY/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9828 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 21-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: G BASKAR
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH, CH ENNAI . , . ! ! ! ! , ' ' ' ' # # # # $ $$ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.720/MDS/2013 ' ! %! / ASSESSMENT YEAR :2009-10 & C.O.NO.93/MDS/2013 [IN I.T.A.NO.720/MDS/2013] THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(3), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S. ZUHA LEATHER PVT. LIMITED, TANNERS & EXPORTERS, 22, V.V. KOIL STREET, PERIAMET, CHENNAI 600 003. [PAN : AAACZ2099M] ( APPELLANT ) ( RESPONDENT /CROSS OBJECTOR ) DEPARTMENT BY : DR. S. MOHARANA, CIT ASSESSEE BY : SHRI G. BASKAR, ADVOCATE & ' / DATE OF HEARING : 21.08.2014 (% & ' /DATE OF PRONOUNCEMENT : 05.09.2014 ) ) ) ) / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS) I, (I/C) MADURAI, DATED 17.01.2013 RELEVA NT TO THE ASSESSMENT YEAR 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORTING OF FINI SHED LEATHER. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F .38,35,000/-. THE ASSESSEE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.72 7272 720 00 0/M/ /M/ /M/ /M/1 11 13 33 3 & && & C.O.NO. 9 C.O.NO. 9 C.O.NO. 9 C.O.NO. 93 33 3/M/13 /M/13 /M/13 /M/13 2 IN ITS RETURN CLAIMED .84,82,562/- AS AN EXPENDITURE FOR THE PURPOSE OF PAYMENT OF COMMISSION TO THE FOREIGN AGENTS. THE AS SESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TDS UNDER SECTION 195 OF THE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE INCOME IS DEEMED TO BE ACCRUED IN INDIA BY VIRT UE OF SECTION 9(1)(I) OF THE INCOME TAX ACT AND THEREFORE, THE ASSESSEE IS LIABL E TO DEDUCT TDS AND DISALLOWED THE CLAIM OF THE ASSESSEE. 3. ON APPEAL, THE LD. CIT(APPEALS), BY FOLLOWING V ARIOUS DECISIONS INCLUDING THE DECISION OF THE DELHI BENCH OF ITAT I N THE CASE OF DCIT V. EON TECHNOLOGY P. LTD. [2011] 11 TAXMANN.COM 53 (DELHI) , ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. FAIZAN SHOES PVT. LTD. IN T.C.(A) NO. 789 OF 2013 VIDE ORDER DATED 22.07.2014. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ONLY POINT FOR ADJUDICATION BEFORE US IS WHETHER THE TDS HAS TO BE DEDUCTED OR NOT WHE N THE COMMISSION PAYMENT MADE TO THE OVERSEAS AGENTS. THE HONBLE JUR ISDICTIONAL HIGH I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.72 7272 720 00 0/M/ /M/ /M/ /M/1 11 13 33 3 & && & C.O.NO. 9 C.O.NO. 9 C.O.NO. 9 C.O.NO. 93 33 3/M/13 /M/13 /M/13 /M/13 3 COURT IN THE CASE OF CIT V. FAIZAN SHOES PVT. LTD. (SUPRA) HAS CONSIDERE D SIMILAR ISSUE AND DECIDED THE CASE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 9. THE EXPLANATION TO SECTION 9(2) OF THE ACT WAS SUBSTITUTED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1. 6.1976. THE ABOVE SAID EXPLANATION WOULD COME INTO PLAY ONLY IF THE S AID AMOUNT PAID WOULD FALL UNDER THE HEADINGS: (I)INCOME BY WAY OF INTEREST AS SET OUT IN SECTION 9(1)(V) OF THE ACT; OR (II)INCOME BY WAY OF ROYALTY AS SET OUT IN SECTION 9(1)(VI) OF THE ACT; OR (III) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES AS SET OUT IN SECTION 9(1)(VII) OF THE ACT. 10. WHILE DEALING WITH SECTION 9(1) OF THE ACT, TH E SUPREME COURT IN COMMISSIONER OF INCOME TAX V. TOSHOKU LIMITED, (198 0) 125 ITR 525, ON CONSIDERING A TRANSACTION WHERE TOBACCO WAS EXPORTE D TO JAPAN AND FRANCE AND SOLD THROUGH NON-RESIDENT ASSESSEES WHO WERE PAID COMMISSION, HELD AS UNDER: 8. THE SECOND ASPECT OF THE SAME QUESTION IS WHET HER THE COMMISSION AMOUNTS CREDITED IN THE BOOKS OF THE STA TUTORY AGENT CAN BE TREATED AS INCOMES ACCRUED, ARISEN, OR DEEME D TO HAVE ACCRUED OR ARISEN IN INDIA TO THE NON-RESIDENT ASSE SSEES DURING THE RELEVANT YEAR. THIS TAKES US TO S. 9 OF THE ACT. IT IS URGED THAT THE COMMISSION AMOUNTS SHOULD BE TREATED AS INCOMES DEE MED TO HAVE ACCRUED OR ARISEN IN INDIA AS THEY, ACCORDING TO TH E DEPARTMENT, HAD EITHER ACCRUED OR ARISEN THROUGH AND FROM THE B USINESS CONNECTION IN INDIA THAT EXISTED BETWEEN THE NON-RE SIDENT ASSESSEES AND THE STATUTORY AGENT. THIS CONTENTION OVERLOOKS THE EFFECT OF CL. (A) OF THE EXPLANATION TO CL. (I) OF SUB-S. (1) OF S. 9 OF THE ACT WHICH PROVIDES THAT IN THE CASE OF A BUSINESS OF WHICH AL L THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUS INESS DEEMED UNDER THAT CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. IF ALL SUCH OPERATIONS ARE CA RRIED OUT IN INDIA, THE ENTIRE INCOME ACCRUING THEREFROM SHALL BE DEEME D TO HAVE ACCRUED IN INDIA. IF HOWEVER, ALL THE OPERATIONS AR E NOT CARRIED OUT IN THE TAXABLE TERRITORIES, THE PROFITS AND GAINS O F BUSINESS DEEMED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNEC TION IN INDIA SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONA BLY ATTRIBUTABLE TO THAT PART OF THE OPERATIONS CARRIED OUT IN THE T AXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS ARE CARRIED OUT IN THE TAXABLE TERRITORIES, IT FOLLOWS THAT THE INCOME ACCRUING OR ARISING ABROAD THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA CA NNOT BE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.72 7272 720 00 0/M/ /M/ /M/ /M/1 11 13 33 3 & && & C.O.NO. 9 C.O.NO. 9 C.O.NO. 9 C.O.NO. 93 33 3/M/13 /M/13 /M/13 /M/13 4 DEEMED TO ACCRUE OR ARISE IN INDIA (SEE CIT V. R. D . AGGARWAL AND CO. [1965] 56 ITR 20 (SC) AND CARBORANDUM CO. V. CI T [1977] 108 ITR 335 (SC) WHICH ARE DECIDED ON THE BASIS OF S. 42 OF THE INDIAN I.T. ACT, 1922, WHICH CORRESPONDS TO S. 9(1) (I) OF THE ACT). 9. IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORI ES. THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO BE REMITT ED BY THE PURCHASERS FROM ABROAD DOES NOT AMOUNT TO AN OPERAT ION CARRIED OUT BY THE ASSESSEES IN INDIA AS CONTEMPLATED BY CL . (A) OF THE EXPLANATION TO S. 9(1)(I) OF THE ACT. THE COMMISSIO N AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE INDIA CANNOT, THEREFORE, BE DEEMED TO BE INCOMES WHICH HAVE EITHER ACCRUED OR ARISEN IN INDIA. THE H IGH COURT WAS, THEREFORE, RIGHT IN ANSWERING THE QUESTION AGAINST THE DEPARTMENT. 11. THE FACTS OF THE PRESENT CASE ARE AKIN TO THE FACTS OF THE DECISION IN TOSHOKU LIMITED CASE, REFERRED SUPRA. IN THE INSTA NT CASE ALSO THE ASSESSEE ENGAGED THE SERVICES OF NON-RESIDENT AGENT TO PROCURE EXPORT ORDERS AND PAID COMMISSION. THAT APART, THE COMMI SSIONER OF INCOME (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY AP PLIED THE PRINCIPLE LAID DOWN IN GE INDIA TECHNOLOGY CEN. (P) LTD. CASE, REF ERRED SUPRA, TO HOLD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SO URCE WHEN THE NON- RESIDENT AGENT PROVIDES SERVICES OUTSIDE INDIA ON P AYMENT OF COMMISSION. 12. IN THE LIGHT OF THE ABOVE SAID DECISIONS AND T HE FINDING RENDERED BY US ON THE EARLIER ISSUE THAT THE SERVICES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE CALLED AS A SERVICE FOR COMPLE TION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES, WE ARE THE FIRM VIEW THAT SECTION 9 OF T HE ACT IS NOT APPLICABLE TO THE CASE ON HAND AND CONSEQUENTLY, SECTION 195 O F THE ACT DOES NOT COME INTO PLAY. IN VIEW OF THE ABOVE FINDING, THE D ECISION OF THE SUPREME COURT IN TRANSMISSION CORPORATION OF A.P. LTD. CASE , REFERRED SUPRA, RELIED UPON BY THE LEARNED STANDING COUNSEL FOR THE REVENUE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE FI ND NO INFIRMITY IN THE ORDER OF THE TRIBUNAL IN CONFIRMING THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS). 8. BEFORE US, THE REVENUE HAS NOT FILED ANY MATERI AL TO CONTROVERT THE FINDINGS OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE ABOVE REFERRED CASE. WE FIND THAT THE FACTS OF THE PRESENT ARE SIMILAR T O THE CASE AS DECIDED BY THE HONBLE JURISDICTIONAL HIGH COURT. THEREFORE, RESPE CTFULLY FOLLOWING THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.72 7272 720 00 0/M/ /M/ /M/ /M/1 11 13 33 3 & && & C.O.NO. 9 C.O.NO. 9 C.O.NO. 9 C.O.NO. 93 33 3/M/13 /M/13 /M/13 /M/13 5 DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 93/MDS/2013 9. THE ASSESSEE HAS FILED CROSS OBJECTION ONLY TO SUPPORT THE ORDER OF THE LD. CIT(APPEALS) AND SAME IS DISPOSED OFF WITHOUT P ASSING ANY ORDER. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 5 TH OF SEPTEMBER, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 05.09.2014 VM/- ) & *''+, -,%' /COPY TO: 1. ./ / APPELLANT, 2. *0./ / RESPONDENT, 3. 1 ( ) /CIT(A), 4. 1 /CIT, 5. ,2 *''' /DR & 6. 3! 4 /GF.