Habeeb Tanning Company, Gudiyatham V. DCIT, Vellore

ITA 1029/CHNY/2013

• Counselvise Citation: 102921714 RSA 2013
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI JT
• Assessee Lawyers: V CHANDRAS HEKARAN
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , . . !' , # '$ % [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.1029/MDS/2013 / ASSESSMENT YEAR : 2008-09 M/S HABEEB TANNING COMPANY RAILWAY STATION ROAD AMMANANKUPPAM VILLAGE R.S. ROAD, GUDIYATTAM R.S. POST GUDIYATTAM 635 803 VS. THE DY. CIT CIRCLE I VELLORE [PAN AAAFH 0373 B] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI V. CHANDRASHEKARAN, CA /RESPONDENT BY : SHRI T.N.BETGIRI, JT.CIT / DATE OF HEARING : 04-02-2014 / DATE OF PRONOUNCEMENT : 07-02-2014 '* / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09, IS DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME- TAX-VIII CHENNAI, DATED 18.2.2013, PASSED IN CASE N O.21(23)/CIT I.T.A.NO.1029/13 :- 2 -: VIII/2011-12, IN PROCEEDINGS UNDER SECTION 263 OF T HE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THE COURSE OF HEARING, THE ASSESSEE STRONGLY A RGUES THAT THE CIT HAS ERRED IN DIRECTING THE ASSESSING OFFICE R TO PASS A FRESH ORDER AFTER A DETAILED INVESTIGATION QUA ITS FOREIG N AGENT EXPORT COMMISSION OF ` 1,46,84,028/-. IT IS CONTENDED THAT SINCE THE ASSESSING OFFICER HAD RIGHTLY HELD IT ENTITLED FOR THE SAME AS EXPENDITURE, THE CIT OUGHT NOT TO HAVE INVOKED JURI SDICTION U/S 263 OF THE ACT. PER ASSESSEE, THE ASSESSING OFFICER HAD ALLOWED THE AFORESAID COMMISSION IN ACCORDANCE WITH THE CIRCULARS ISSUED BY THE BOARD IN THE YEAR 1969 I.E 23.7.1969 BEARING NO.23 AND ALSO NO.786 DATED 7.2.2000. HENCE, IT ARGUES THAT SECTION 263 PROCEE DINGS HAVE BEEN WRONGLY ASSUMED BY THE CIT. TO BUTTRESS THE SAME, F OLLOWING CASE LAW HAS BEEN QUOTED: MALABAR INDUSTRIAL CO. LTD VS CIT [2000]243 ITR 83 (SC) CIT VS MAX INDIA LIMITED [2007] 295 ITR 282(SC) CIT VS GABRIEL INDIA LTD. 203 ITR 108 (BOM) CIT-I VS ANGELIQUE INTERNATIONAL LTD.[2013]86 CCH 0 75 DELHI HC CIT VS MODEL EXIMS KANPUR [2013 86 CCH 045 ALL HC M/S PRAKASH IMPEX VS ACIT I.T.A.NO.08/MDS/2012 ITO VS FAIZAN SHOES PVT. LTD I.T.A.NO.2095/MDS/2 012 ACIT VS M/S FARIDA SHOES PVT. LTD I.T.A.NO. 359/ MDS/2013 M/S EXOTIC FRUITS PVT. LTD VS ITO I.T.A.NOS.1008 TO 1013/BANG/2012 I.T.A.NO.1029/13 :- 3 -: IN VIEW THEREOF, ACCEPTANCE OF THE APPEAL HAS BEEN PRAYED FOR. 3. PER CONTRA, THE REVENUE SUPPORTS THE ORDER OF CIT A SSUMING PROCEEDINGS U/S 263 OF THE ACT AND ARGUES THAT DURI NG THE COURSE OF REGULAR ASSESSMENT, THE ASSESSING OFFICER DID NOT CARRY OUT A DETAILED ENQUIRY/INVESTIGATION TO FIND OUT NATURE OF THE FOR EIGN AGENTS COMMISSION PAID. HENCE, THE IMPUGNED PROCEEDINGS H AVE BEEN RIGHTLY INITIATED AGAINST THE ASSESSEE. 4. FACTS OF THE CASE ARE IN A VERY NARROW COMPASS. TH E ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSINES S OF TANNING, PROCESSING OF RAW LEATHER TO FINISHED LEATHER AS WE LL AS ITS SALE AND EXPORT. ON 31.10.2009, THE ASSESSEE HAD FILED ITS RETURN DISCLOSING TOTAL INCOME OF ` 2,73,19,910/-. THE SAME WAS SUMMARILY PROCESSED . THEREAFTER, VIDE ASSESSMENT ORDER DATED 16.12.2010, THE ASSESSING OFFICER FRAMED REGULAR ASSESSMENT ADMITTING THE I NCOME ALREADY DECLARED BY THE ASSESSEE. 5. IT IS TO BE SEEN FROM THE CASE FILE THAT ON 26.4.20 12, THE CIT ISSUED SECTION 263 NOTICE TO THE ASSESSEE BY OBSER VING THAT PRIMA- FACIE THE ASSESSMENT IN QUESTION FRAMED HEREINABOVE WAS ERRONEOUS CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE AS UNDER: I.T.A.NO.1029/13 :- 4 -: SUB: SHOW CAUSE NOTICE U/S 263 OF THE INCOME-TAX AC T, 1961 FOR THE ASSESSMENT YEAR 2008-09 -YOUR OWN - PAN AAAFH0373B - REG FOR THE ASSESSMENT YEAR 2008-09, YOU HAD FILED RETU RN OF INCOME ON 31.10.2008 ADMITTING INCOME OF RS.2,73, 13,910/- AND THE SAME WAS PROCESSED U/S 143(1). 2. LATER, ASSESSMENT IN YOUR CASE WAS TAKEN UP FOR SCRUTINY AND AN ORDER U/S 143(3) OF THE INCOME-TAX ACT, 1961 WAS PASSED ON 16.12.2010 ACCEPTING THE INCOME RETURNED BY YOU. 3. SUBSEQUENTLY, A PERUSAL OF THE DETAILS FI LED BY YOU BEFORE THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2008-09 SHOWED THAT YOU HAVE MA DE PAYMENTS ON ACCOUNT OF COMMISSION AMOUNTING TO RS.1 ,46,84,028/ - TO YOUR FOREIGN AGENTS IN CONNECTION WITH YOUR EXPORTS AND THAT YOU HAVE NOT DEDUCTED TDS U/S 195 OF THE INCOME-TAX ACT,1961 AND REMITTED THE SAME IN TO THE GOVERNMENT OF INDIA ACCOUNT. 4. IN THIS CONNECTION IT IS PERTINENT TO P OINT OUT THAT THE CBDT, NEW DELHI VIDE ITS CIRCULAR IN NO. 7/2009 [F. NO. 500/1 35/2007-FTD-I], DATED 22-10-2009 HAS WITHDRAWN THE CIRCULARS IN NO.23 DT. 23.7.1969, CIRCULAR NO.163 DT. 29.5.1975 AND CIRCULAR NO.786 DT. 7.2.2000. THE CIRCULAR NO.7 OF 2009 DT. 22.10.2009 WITHDRAWS ALL THE ABOVE MENTION ED CIRCULARS STATING THAT INTERPRETATION OF THE CIRCULAR BY SOME OF THE TAXPA YERS TO CLAIM RELIEF WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 9 OF THE INCOME-TAX ACT, 1961 OR THE INTENTION BEHIND THE ISSUANCE OF THE CIRCULARS ON THE INCOME DEEMED TO ACCRUE ARISE IN INDIA. HOWEVER, WHILE FINALIZING THE SCRUTINY ASSESSMENT IN YOUR CASE FOR THE ASSESSMENT YEAR 2008-09, ASSESSIN G OFFICER HAS OMITTED TO CONSIDER THIS ISSUE BY DISALLOWING THE PAYMENTS MADE ON ACCOUNT OF COMMISSION AMOUNTING TO RS.1,46,84,028/- BY YOU TO YOUR FOREIGN AGENTS AS YOU HAVE NOT MADE ANY TDS AND REMITTED INTO THE GOV ERNMENT OF INDIA ACCOUNT FOR THE REASON THAT THE CBDT HAS WITHDRAWN ALL THE CIRCULARS BY ITS LATEST CIRCULAR NO.7/2009 DT. 22.10.2009. 5. UNDER THE CIRCUMSTANCES, IT IS LOGICAL T HAT THE ORDER DT. 16.12.2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2008-09 IN YOUR CASE, IS FOUND NOT ONLY TO BE ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERESTS OF REVENUE. I, THEREFORE, PROPOSE TO PASS AN ORDER U/S 263 OF THE INCOME-TAX ACT, 1961 AS THE FACTS AND CIRCUMSTANCES OF THE CASE DEEM IT FIT. HENCE, YOU ARE HEREBY GIVEN AN OPPORTUNITY TO FILE YOUR WRITTEN SUBMISSIONS/OBJECT IONS OR PERSONALLY APPEAR BEFORE THE UNDERSIGNED THROUGH YOUR AUTHORISED REPRESENTATIVE, IF ANY, ON THE ISSUE MENTIONED ABOVE ON 3.5.2012 AND THAT YOUR CAS E STANDS POSTED I.T.A.NO.1029/13 :- 5 -: FOR HEARING ON THE SAME DATE AT 03.00 P.M IN MY OFF ICE AT THE ADDRESS GIVEN ABOVE, FOR THIS PURPOSE. 6. IN RESPONSE THEREOF, THE ASSESSEE STRONGLY CONTEST ED THE NOTICE AND SUBMITTED BEFORE THE CIT THAT IN THE IMP UGNED ASSESSMENT YEAR, THE CIRCULARS OF THE BOARD ISSUED IN 1969 A ND 2000 (SUPRA) WERE APPLICABLE AS THE ONE WITHDRAWING THEM BEARING NO.7 DATED 22.10.2009 HAD COME LATTER IN POINT OF TIME. IT PL EADED THAT THE ASSESSING OFFICER HAD RIGHTLY FOLLOWED THE BOARDS CIRCULAR APPLICABLE IN THE IMPUGNED ASSESSMENT YEAR AS IT HAD RIGHTLY NOT DEDUCTED ANY TDS AND PRAYED FOR DROPPING SECTION 263 PROCEEDINGS. W E FIND FROM THE CASE FILE THAT THE CIT HAS REJECTED THE ASSESSEES AFORESAID EXPLANATION AS FOLLOWS: 6. I HAVE CONSIDERED THE ISSUE. THE OSTENSIBLE R EASON BEHIND WITHDRAWAL OF THE SAID CIRCULARS WAS THAT THE INTER PRETATION PUT ON THE SAID CIRCULARS BY SOME OF THE TAX PAYERS TO CLAIM R ELIEF IN THE OPINION OF THE BOARD WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9 OR THE INTENTION BEHIND THE ISSUE OF THE CIRCULARS. IN CAS E OF AGENTS WHO ARE TAX RESIDENTS OF COUNTRIES WITH WHICH INDIA HAS DOU BLE TAXATION AVOIDANCE AGREEMENT, SUCH INCOME MAY NOT BE TAXABLE IN INDIA ON ACCOUNT OF THE APPLICABILITY OF ARTICLE 7 OF THE DT AA DEALING WITH BUSINESS PROFITS, AS BUSINESS PROFITS ARE NOT TAXAB LE IN INDIA IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA. IN THE CASE OF AGENTS WHO ARE TAX RESIDENTS OF COUNTRIES WITH WHIC H INDIA DOES NOT HAVE DTAAS WOULD BE GOVERNED BY THE PROVISIONS OF T HE INCOME TAX ACT. WITHOUT VERIFYING THESE ISSUES AND THE NATURE OF PAYMENTS IT HAS BEEN PRESUMED THAT TDS IS NOT APPLICABLE U/S 195 OF THE INCOME TAX ACT, 1961 AGAINST THE PAYMENTS MADE AS COMMISSION T O FOREIGN AGENTS. FIRST WE HAVE TO SEE THE NATURE OF PAYMEN T AND THEN WE CAN APPLY THE CIRCULARS. IN THE INSTANT CASE, THE ASS ESSING OFFICER HAS NOT INVESTIGATED THE NATURE OF COMMISSION PAYMENTS AND ALSO THE I.T.A.NO.1029/13 :- 6 -: APPLICABILITY OF SECTION 9, SECTION 195 AND SECTION 40(A)(I) OF THE INCOME TAX ACT. DUE TO THESE REASONS, I FIND THAT THE ORDE R PASSED BY THE LEARNED ASSESSING OFFICER IS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF THE REVENUE. THE ORDER PASSED U/S 143(3) OF I.T ACT IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO MAKE ENQUIRIES ON THIS ISSUE AND PASS A FRESH ORDER AFTER GIVING REASONABLE OPPO RTUNITY TO THE ASSESSEE AS PER LAW. THEREFORE, THE ASSESSEE IS IN APPEAL. 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THE JUDICIAL PRECEDENTS QUOTED HEREINABOVE HAVE ALS O BEEN PERUSED. IT TRANSPIRES TO US THAT THE CIT HAD ISSUED SHOW C AUSE NOTICE TO THE ASSESSEE ONLY ON THE GROUND OF NON-DEDUCTION OF TD S VIS--VIS THE FOREIGN AGENT EXPORT COMMISSION OF ` 1,46,84,028/-, WHEREAS IN THE ORDER UNDER CHALLENGE, HE HAS ADDED ONE MORE REASON FOR REMITTING THE ISSUE BACK TO THE ASSESSING OFFICER I.E THAT T HE ASSESSING OFFICER DID NOT CARRY OUT ANY DETAILED ENQUIRY/INVESTIGATIO N TO DETERMINE THE NATURE OF THE EXPENDITURE. FIRST WE COME TO THE FO RMER REASON. ADMITTEDLY, THE ASSESSEE HAD MADE PAYMENT OF ` 1,46,84,028/- TO ITS OVERSEAS EXPORT AGENT IN LIEU OF GETTING EXPORT ORD ERS AND DID NOT DEDUCT ANY TDS QUA THE SAID PAYMENTS. PER REVENUE, THE ASSESSEE WAS SUPPOSED TO DEDUCT TDS IN QUESTION. THE ASSES SEE PLACES RELIANCE ON THE CIRCULARS OF THE BOARD BEARING NO .23 DATED 23.7.1969, NO.163 DATED 29.5.1975 AND NO.786 DATED 7.2.2000. IN THE FIRST I.T.A.NO.1029/13 :- 7 -: CIRCULAR, THE BOARD HAD CLARIFIED THAT A FOREIGN AGENT OF INDIAN EXPORTER IS NOT LIABLE TO PAY ANY INCOME TAX IN IND IA. THIS POSITION CONTINUED TILL THE YEAR 2009. IT WAS ONLY IN THE Y EAR 2009 I.E AFTER THE IMPUGNED ASSESSMENT YEAR 2008-09 THAT THE BOARD D ECIDED TO WITHDRAW THE CIRCULAR ON 22.10.2009. IN THESE CIRC UMSTANCES, WE NOTICE THAT THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS ANGELIQUE INTERNATIONAL LTD (SUPRA) HAS HELD THAT THE ACTION OF THE BOARD IN ISSUING WITHDRAWAL OF EARLIER CIRCULARS WITH EFFECT FROM 22.10.2009 IS ONLY PROSPECTIVE AND NOT RETROSPECTIVE. AS A RESUL T, WE ALSO OBSERVE THAT SINCE THE IMPUGNED ASSESSMENT YEAR IS 2008-09 I.E WELL BEFORE 22.10.2009, THE CIRCULAR ISSUED IN THE YEAR 2009 DI D NOT HAVE ANY EFFECT IN THE ASSESSEES CASE. THAT BEING SO, TH E ASSESSING OFFICER HAD RIGHTLY FOLLOWED THE CIRCULAR IN ALLOWING THE ASSESSEES FOREIGN AGENT COMMISSION PAYMENTS AS EXPENDITURE WITHOUT D EDUCTION OF ANY TDS. A PERUSAL OF THE OTHER CASE LAW (SUPRA) ALSO BUTTRESSES THE SAME ARGUMENT OF THE ASSESSEE. RATHER, IN THE CASE OF FAIZAN SHOES PVT. LTD (SUPRA) THE CO-ORDINATE BENCH OF THE CHENNAI T RIBUNAL HOLDS THAT EVEN IN ASSESSMENT YEAR 2009-10, THE CIRCULAR DATED 22.10.2009 DOES NOT APPLY. THUS, WE HOLD THAT THE ASSESSING OFFICE R HAD TAKEN THE ONLY POSSIBLE VIEW BY FOLLOWING THE CIRCULAR ISSUED BY THE BOARD WHICH PROVIDED THAT IN CASE OF FOREIGN AGENT COMMISSION P AYMENTS THE SAID I.T.A.NO.1029/13 :- 8 -: INCOME COULD NOT BE TAXED IN INDIA. IN THIS MANNER, THE ARGUMENT OF THE ASSESSEE CHALLENGING THE SOLE REASON STATED IN THE SECTION 263 SHOW CAUSE NOTICE SUCCEEDS. 8. THAT LEAVES US WITH THE LATTER REASON IN THE IMPUGN ED ORDER THAT SINCE THE ASSESSING OFFICER DID NOT CARRY OUT ANY INVESTIGATION/ ENQUIRY TO DETERMINE NATURE OF THE COMMISSION PAYME NTS AND THEREFORE, THE CIT HAS ONLY REMITTED THE MATTER BAC K TO THE ASSESSING OFFICER TO RE-EXAMINE THE ISSUE WHICH CAUSES NO PRE JUDICE TO THE ASSESSEE. AFTER CONSIDERING THIS PLEA OF THE REVEN UE, IT EMANATES FROM THE CASE FILE THAT FACTUALLY, THE ASSERTION IS CORR ECT. HOWEVER, IN THE SHOW CAUSE NOTICE ISSUED BY THE CIT, THERE IS NO SU CH REASON OF LACK OF ENQUIRY FORTHCOMING. WE MAKE IT CLEAR THAT IN S ECTION 263 PROCEEDINGS, THE JURISDICTION OF THE CIT IS CONFINE D TO ONLY THOSE ISSUES WHICH FORM PART OF THE SHOW CAUSE NOTICE. IN THIS MANNER, THE ORDER UNDER CHALLENGE TRAVERSES BEYOND THE SHOW CAUSE NOT ICE. SINCE WE ARE DEALING WITH A FISCAL STATUTE, THE POWERS OF THE REVENUE HAVE TO BE STRICTLY INTERPRETED. GOING BY THIS REASONING, W E REJECT THE LATTER REASONING IN THE CITS ORDER AS WELL. I.T.A.NO.1029/13 :- 9 -: 9. CONSEQUENTLY, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 07 TH OF FEBRUARY, 2014, AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (S. S. GODARA) JUDICIAL MEMBER DATED: 07 TH FEBRUARY, 2014 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR