ACIT, Trichy V. M/s. Amaravathy Textiles, Karur

ITA 1031/CHNY/2012

• Counselvise Citation: 103121714 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2012
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN JCITD R
• Assessee Lawyers: V D GOPAL
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Reasonable cause
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1031 /MDS./2012 ( ! '! / ASSESSMENT YEAR :2008-09) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-II, TRICHY. VS. M/S.AMARVATHY TEXTILES , NO.9-D,RAMAKRISHNAN PURAM, KARUR 639 001. PAN AAFFA 9673 E ( / APPELLANT ) ( / RESPONDENT ) #$ % & / APPELLANT BY : MR.P.RADHAKRISHNAN JCIT,D.R '(#$ % & /RESPONDENT BY : MR.V.D.GOPAL,ADVOCATE ) * % +, / DATE OF HEARING : 08. 06.2015 -' % +, /DATE OF PRONOUNCEMENT : 05.08.2015 / O R D E R ITA NO.1031 /MDS/2012 2 PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), TIRUCHI RAPPALLI DATED 28.02.2012 IN ITA NO.391/2010-11 PASSED UNDER SEC.1 43(3) READ WITH SECTION SEC. 250 OF THE ACT. 2. THE REVENUE HAS RAISED FIVE ELABORATE GROUNDS I N ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT:- (I) THE LD. CIT(A) HAD ERRONEOUSLY HELD BY RELYING IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE TOSHOKU LTD., RE PORTED IN 125 ITR 525(SC) THAT, THE REMUNERATION PAID IN FOREIGN CURR ENCY BY THE ASSESSEE, FOR SERVICES RENDERED OUTSIDE INDIA BEING PRODUCT DESIGNING CHARGES, IS NOT LIABLE TO BE TAXED IN IND IA, AND ACCORDINGLY TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 OF THE ACT. ADDITIONAL GROUND ITA NO.1031 /MDS/2012 3 (II) THE LD. CIT(A) HAD ERRONEOUSLY HELD THAT, IN THE CASE WHERE RENT IS PAID TO THE PARTNERS BY THE FIRM, THE PROVISIONS OF SECTION 195-I OF THE ACT WILL NOT BE ATTRACTED. 3. THE ASSESSEE HAS FILED A LETTER DATED 04.06.20 14 REQUESTING THE TRIBUNAL NOT TO ADMIT THE ADDITIONAL GROUNDS FILED BY THE REVENUE SINCE THERE WAS NO JUSTIFICATION FOR THE SAME. AFT ER PERUSING THE LETTER, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE ASSESSEE AND THEREFORE, WE HEREBY REJECT THE SAME. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A FIRM, ENGAGED IN THE BUSINESS OF EXPORTING HANDLOOM CLOTH ES, FILED ITS RETURN OF INCOME ON 11.09.2008 ADMITTING ITS TOTAL INCOME AS ` 25,37,417/-. SUBSEQUENTLY, THE CASE WAS TAKEN UP FO R SCRUTINY AND THE ASSESSMENT U/S.143(3) WAS COMPLETED ON 28.12.2 010 WHEREIN THE LD. ASSESSING OFFICER MADE DISALLOWANCE OF ` 15,37,994/- AND ` 8,40,000/- U/S.40(A)(IA) OF THE ACT TOWARDS NON-DED UCTION OF TDS FOR THE PAYMENT MADE TO FOREIGN AGENT AND TOWARDS PAYME NT OF RENT TO PARTNERS OF THE FIRM RESPECTIVELY. ITA NO.1031 /MDS/2012 4 5.1 GROUND NO.1 - NON-DEDUCTION OF TDS FOR PAYMENT OF PRODUCT DESIGNING CHARGES OUTSIDE INDIA FOR SERVICES RENDER ED OUTSIDE INDIA. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENT OF ` 15,37,994/- TO MS JOANNE COLLINS IN USA TOWARDS PRODUCT DESIGN CHARGES. THE ASSESSEE HAD EXPLAINED BEFORE THE REVENUE THAT PAYMENT MADE TO NON-RESIDEN T FOR SERVICE RENDERED OUTSIDE INDIA IS NOT LIABLE FOR TDS UNDER THE PROVISIONS OF THE ACT AND THEREFORE, DISALLOWANCE OF THE SAME INV OKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WILL NOT ARISE. HOWEVER, THE LD. ASSESSING OFFICER HELD THAT BY VIRTUE OF SECTIO N.9(1)(VI) OF THE ACT AND ARTICLE-12 OF DOUBLE TAXATION AVOIDANCE AGREEME NT ENTERED INTO BETWEEN INDIA & USA, ROYALTIES AND FEES FOR SERV ICES RENDERED WILL BE TAXABLE AT THE CONTRACTING STATE IN WHICH THEY A RISE AND ACCORDINGLY AS PER THE LAW TDS HAS TO BE DEDUCTED. THE RELEVAN T PORTION OF THE ORDER OF THE LD. ASSESSING OFFICER IS EXTRACTED HER EIN BELOW FOR REFERENCE:- ITA NO.1031 /MDS/2012 5 2.1.REGARDING THE TAXABILITY OF INCOME EARNE D BY NON-RESIDENTS, IT IS PERTINENT TO NOTE THAT AS PER SECTION-5(2), THE TOT AL INCOME OF THE NON- RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE D ERIVED WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF SUCH PERSON AND WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. SECTION 9(1) DEALS WITH INCOME DEEMED TO ARISE OR ACCRUE IN INDIA. IT IS TO BE SEEN AS TO W HETHER THE PAYMENT TO THE NON-RESIDENT MENTIONED ABOVE FALLS UNDER ANY OF THE CATEGORIES MENTIONED IN SECTION.9(1) OF THE ACT. HENCE, THE AS SESSEE WAS ASKED TO FURNISH THE DETAILS OF THE ABOVE PAYMENT AND ITS NA TURE. IN THIS CONNECTION, THE ASSESSEES REPRESENTATIVE PRODUCED A COPY OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND MS. JOANNE COLLINS PRODUCT DESIGN, ACCORDING TO WHICH THE ABOVE PAYMEN TS WERE CLAIMED TO HAVE BEEN MADE. EXAMINATION OF THE AGREEMENT PRODUC ED REVEALS THAT THE ASSESSEE FIRM HAS PAID TO MS.JOANNE COLLINS, C/ O.JOANNE COLLINS PRODUCT DESIGN, 4656 NINE MILE GREEK PAREWAY, MINNE APOLIS, MN 55437 USA IN TERMS OF 3% OF THE VALUE OF THE PROCEEDS REA LIZED ON ACCOUNT OF EXPORTS OF PRODUCTS DESIGNED BY MS.JOANNE COLLINS, USA. 2.2. THE PAYMENT OF THIS TYPE IS COVERED UNDER THE TERM ROYALTY WITHIN THE PROVISIONS OF SECTION 9(1)(VI) OF THE IT ACT. IN EX PLANATION 2 TO SECTION-9(1)(VI) HAS BEEN DEFINED SO AS TO INCLUDE THE FOLLOWING, (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING T HE WORKING OF, OR THE USE OF, A PATENT INVENTION, MODEL, DESIGN, SECRET FORMU LA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. ITA NO.1031 /MDS/2012 6 (III) THE USE OF ANY PATENT, INVENTION, MODEL, DES IGN SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC, OR SC IENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISIO N OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDI NG CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRA PHIC FILMS OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (1) TO (V) FROM THE ABOVE, IT IS CLEAR THAT THE ROYALTY INCOME IN THE HANDS OF MS.JOANNE COLLINS, USA IS ASSESSABLE TO TAX IN INDI A BY VIRTUE OF SECTION.9(1)(VI) OF THE IT ACT. FURTHER, ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT ENTERED INTO BETWEEN INDIA AND USA STATES THAT ROYALTIES AND FEES FOR INCLUDED SERVICES MAY ALSO B E TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE. 5.2 ON APPEAL, THE LD. CIT (A) DELETED THE ADDITIO N BY PLACING RELIANCE IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE TOSHOKU LTD., REPORTED IN 125 ITR 525(SC) AND HELD THAT THE ASSESSEE IS NOT REQUIRED TO DEDUCT TAX AT SOURCE FO R THE PAYMENTS MADE IN FOREIGN CURRENCY TO MS JOANNE COLLINS TOWAR DS SERVICES RENDERED OUTSIDE INDIA BEING PRODUCT DESIGN CHARGES . THE RELEVANT ITA NO.1031 /MDS/2012 7 PORTION OF THE ORDER OF THE LD.CIT(A) IS EXTRACTED HEREIN BELOW FOR REFERENCE:- ON VERIFYING THE SUBMISSIONS MADE BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT, ASSESSMENT ORDER AND ALSO MATERIAL O N RECORD THE APPELLANT FIRM ENGAGED THE SERVICES OF ONE MS.JOANNE COLLINS AS A DESIGN AND FASHION CONSULTANT ON REMUNERATION BASIS. SHE WAS RENDERING SERVICES OUTSIDE INDIA BY SUGGESTING DESIGN AND FASHION CHAN GES TO CATER TO THE REQUIREMENTS OF CUSTOMERS IN USA AND EUROPEAN COUNT RIES. THE APPELLANT BEING A EXPORTER OF HANDLOOM TEXTILES TO USA AND EU ROPEAN COUNTRIES NEED THE SERVICES OF MS.JOANNE COLLINS AND PAID A TOTAL SUM OF ` 15,37,994/- AS REMUNERATION. THE ASSESSING OFFICER WAS UNDER THE I MPRESSION THAT ABOVE PAYMENT WAS MADE WITHOUT DEDUCTION OF TAX. SHE BEIN G A NON RESIDENT AND HERE SERVICES WERE RENDERED OUTSIDE INDIA PAID THE REMUNERATION ALSO OUTSIDE INDIA IN FOREIGN CURRENCY, THE AUTHORIZED R EPRESENTATIVE OF THE PAT ARGUED THAT NO TAXABLE EVENT HAD HAPPENED IN INDIA TO ATTRACT TAX LIABILITY.SHE IS NOT LIABLE TO PAY ANY TAX IN INDIA AND HENCE NO TDS IS REQUIRED TO BE DEDUCTED WHEN THE PAYEE IS A NRI, WH O IS NOT LIABLE TO TAX IN INDIA. A NON-RESIDENT PAYEE HAS NEITHER A BUSINESS CONNECTION IN OR WITH INDIA NOR A PERMANENT ESTABLISHMENT IN INDIA EVEN T HE DOUBLE TAXATION AGREEMENT WOULD NOT MAKE THE PAYEE LIABLE TO PAY TA X IN INDIA. I AM FULLY CONVINCED WITH THE ARGUMENT OF THE AUTHORIZED REPRE SENTATIVE OF THE APPELLANT SINCE THE APPELLANT FIRM HAS PAID REMUNER ATION IN FOREIGN CURRENCY OUTSIDE INDIA FOR THE SERVICES RENDERED ALSO OUTSID E INDIA WHEN THE PAYEE IS NOT LIABLE TO PAY ANY TAX IN INDIA, BEING NRI, NO T DS IS REQUIRED TO BE DEDUCTED. THE SAME VIEW WAS HELD IN APEX COURT JUD GMENT IN THE CASE OF TOSHUKU LTD 125/525(SC) WHEREIN IT WAS HELD THAT IF SERVICES RENDERED OUTSIDE INDIA TDS NEED NOT BE DEDUCTED. THEREFORE, PROVISIONS OF SECTION ITA NO.1031 /MDS/2012 8 40(A)(IA) ARE NOT APPLICABLE AND ADDITION MADE AT R S.1537994 AS REMUNERATION IS DELETED. 5.3 LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE LD. ASSESSING OFFICER WHILE AS LD. A.R RELIED IN THE DECISIONS PL ACED BEFORE US IN THE PAPER BOOK AND THE ORDER OF THE LD. CIT (A). 5.4 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF TH E CASE, IT IS APPARENT THAT PAYMENT IN FOREIGN CURRENCY IS MADE T O NON-RESIDENT OUTSIDE INDIA FOR SERVICES RENDERED OUTSIDE INDIA. AS POINTED OUT BY THE LD. CIT (A), THE DECISION OF THE HONBLE APEX C OURT IN THE CASE TOSHOKU LTD.,(SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. THE ASSESSEE HAD ALSO EXPLAINED THAT MS JOANNE COLLINS WAS ONLY ACTING AS SELLING AGENT AND ALSO A DVISING THE ASSESSEE ON THE PRODUCT TREND IN USA BASED ON WHICH THE ASSESSEE WAS MANUFACTURING GARMENTS FOR MARKETING IN USA. TH E ASSESSEE HAD PAID IN FOREIGN CURRENCY AS REMUNERATION TO MS JOANNE COLLINS @3% ON THE VALUE OF THE EXPORT SALES PROCEEDS. IN SUCH CIRCUMSTANCES, THE HONBLE APEX COURT HAS CATEGORIC ALLY HELD THAT THE ITA NO.1031 /MDS/2012 9 COMMISSION AMOUNT WHICH WAS EARNED BY A NON-RESIDEN T FOR SERVICES RENDERED OUTSIDE INDIA WOULD NOT BE DEEMED TO BE IN COME WHICH IS EITHER ACCRUED OR ARISEN IN INDIA. MOREOVER IN THE RECENT DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. FAIZAN SHOES PVT. LTD. REPORTED IN 367 ITR 155(MAD.) IT HA S BEEN HELD AS FOLLOWS:- 9. THE EXPLANATION TO SECTION 9(2) OF THE ACT WAS SUBSTITUTED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FRO M 1.6.1976. THE ABOVE SAID EXPLANATION WOULD COME INTO PLAY ONLY IF THE SAID AMOUNT PAID WOULD FALL UNDER THE HEADINGS: (I) INCOME BY WAY OF INTEREST AS SET OUT IN SECTI ON 9(1)(V) OF THE ACT; OR (II) INCOME BY WAY OF ROYALTY AS SET OUT IN SECTI ON 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, ( 1980) 125 ITR 525, ON CONSIDERING A TRANSACTION WHERE TOBACCO WAS EXPORTED TO JAPAN AND FRANCE AND SOLD THROUGH NON-RESIDENT ASSE SSEES WHO WERE PAID COMMISSION, HELD AS UNDER: 8. THE SECOND ASPECT OF THE SAME QUESTION IS WHETH ER THE COMMISSION AMOUNTS CREDITED IN THE BOOKS OF THE STA TUTORY AGENT CAN BE TREATED AS INCOMES ACCRUED, ARISEN, OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA TO THE NON-RESID ENT ASSESSEES DURING THE RELEVANT YEAR. THIS TAKES US T O S. 9 OF THE ACT. IT IS URGED THAT THE COMMISSION AMOUNTS SH OULD BE TREATED AS INCOMES DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA ITA NO.1031 /MDS/2012 10 AS THEY, ACCORDING TO THE DEPARTMENT, HAD EITHER AC CRUED OR ARISEN THROUGH AND FROM THE BUSINESS CONNECTION IN INDIA THAT EXISTED BETWEEN THE NON-RESIDENT 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 BUSINESS DEEMED UNDER THAT CLAUSE TO ACCRUE OR ARIS E IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONA BLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA . IF ALL SUCH OPERATIONS ARE CARRIED OUT IN INDIA, THE ENTIRE INC OME ACCRUING THERE FROM SHALL BE DEEMED TO HAVE ACCRUED IN INDIA . IF HOWEVER, ALL THE OPERATIONS ARE NOT CARRIED OUT IN THE TAXABLE TERRITORIES, THE PROFITS AND GAINS OF BUSINESS DEEM ED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNECTION IN IN DIA SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONABLY AT TRIBUTABLE TO THAT PART OF THE OPERATIONS CARRIED OUT IN THE T AXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS ARE CARRI ED OUT IN THE TAXABLE TERRITORIES, IT FOLLOWS THAT THE INCOME ACC RUING OR ARISING ABROAD THROUGH OR FROM ANY BUSINESS CONNECT ION IN INDIA CANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA (SEE CIT V. R. D. AGGARWAL AND CO. [1965] 56 ITR 20 (SC) AND CARBORANDUM CO. V. CIT [1977] 108 ITR 335 (SC) WHIC H ARE DECIDED ON THE BASIS OF S. 42 OF THE INDIAN I.T. AC T, 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 TER RITORIES. THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE REC EIPT IN ITA NO.1031 /MDS/2012 11 INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR C AUSED TO BE REMITTED BY THE PURCHASERS FROM ABROAD DOES NOT AMO UNT TO AN OPERATION CARRIED OUT BY THE ASSESSEES IN INDIA AS CONTEMPLATED BY CL. (A) OF THE EXPLANATION TO S. 9( 1)(I) OF THE ACT. THE COMMISSION AMOUNTS WHICH WERE EARNED BY TH E NON- RESIDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE IN DIA CANNOT, THEREFORE, BE DEEMED TO BE INCOMES WHICH HA VE EITHER ACCRUED OR ARISEN IN INDIA. THE HIGH COURT W AS, 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 INSTANT CASE ALSO THE ASSESSEE ENGAGED THE SERVICES OF NON-RESID ENT AGENT TO PROCURE EXPORT ORDERS AND PAID COMMISSION. THAT A PART, THE COMMISSIONER OF INCOME (APPEALS) AS WELL AS THE TRI BUNAL HAVE CORRECTLY APPLIED THE PRINCIPLE LAID DOWN IN GE IND IA TECHNOLOGY CEN. (P) LTD. CASE, REFERRED SUPRA, TO HOLD THAT THE ASS ESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE WHEN THE NON-RESIDENT AGENT PR OVIDES SERVICES OUTSIDE INDIA ON PAYMENT OF COMMISSION. 12. IN THE LIGHT OF THE ABOVE SAID DECISIONS AND T HE FINDING RENDERED BY US ON THE EARLIER ISSUE THAT THE SERVIC ES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE CALLED AS A SERVI CE FOR COMPLETION 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 THE ACT IS NOT APPLICABLE TO THE CASE ON HAND AND C ONSEQUENTLY, SECTION 195 OF THE ACT DOES NOT COME INTO PLAY. IN VIEW OF THE ABOVE FINDING, THE DECISION OF THE SUPREME COURT IN TRANS MISSION ITA NO.1031 /MDS/2012 12 CORPORATION OF A.P. LTD. CASE, REFERRED SUPRA, RELI ED UPON BY THE LEARNED STANDING COUNSEL FOR THE REVENUE IS NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. WE FIND NO INFIRMITY IN THE ORDER OF THE TRIBUNAL IN CONFIRMING THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS). SINCE THE FACTS ARE IDENTICAL IN THE CASE OF THE ASSESSEE WITH RESPECT TO THE FACTS OF THE CASE DECIDED BY THE HON BLE APEX COURT AND JURISDICTIONAL MADRAS HIGH COURT SUPRA WHEREIN THE HONBLE COURTS HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE , WE DO NOT FIND IT NECESSARY TO INTERFERE IN THE ORDER OF THE LD. CIT (A) ON THIS ISSUE SINCE HE HAS ONLY FOLLOWED THOSE DECISIONS. 6.1 GROUND NO.2 NON-DEDUCTION OF TDS TOWARDS PAYM ENT OF RENT TO THE PARTNERS OF THE FIRM. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE LD. A.O. FURTHER OBSERVED THAT THE ASSESSEE FIRM HAD PAID RE NT TO ITS PARTNERS SHRI M.SIVAKNNU, ` 4,80,000/- & SHRI PREM ANAND ` 3,60,000/- WITHOUT DEDUCTING TAX AT SOURCE IN ACCORDANCE WITH SECTION 195(I) OF THE ACT. THE ASSESSEES REPRESENTATATIVE HAD STATED BEFORE T HE LD. ASSESSING OFFICER THAT THE PAYMENT OF RENT BY THE FIRM TO ITS PARTNERS IS NOT LIABLE ITA NO.1031 /MDS/2012 13 FOR DEDUCTION OF TAX AT SOURCE SINCE THE FIRM IS ON LY COLLECTIVE ENTITY AND NOT DIFFERENT FROM THE PARTNERS. HOWEVER, THE LD. ASSESSING OFFICER OPINED THAT THERE WAS NO EXEMPTION GRANTED UNDER THE PROVISIONS OF THE ACT FOR NOT DEDUCTING TAX AT SOUR CE WHILE MAKING THE PAYMENT OF RENT BY FIRM TO ITS PARTNERS. THEREFORE THE LD. ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND ADDED THE AGGREGATE AMOUNT OF ` 8,40,000/- TO THE INCOME OF THE ASSESSEE INVOKING THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT. ON APPEAL, THE LD. CIT (A) DELETED THE ADDITION OF ` 8,40,000/- BECAUSE HE WAS OF THE VIEW THAT THE EXPENDITURE IN THE FORM OF RENT IS NOT A DEDUCTION FALLING UNDER ANY OF THE SECTIONS 32 TO 3 8 OF THE ACT AND ONLY A LEGITIMATE DEBIT IN THE TRADING ACCOUNT. 6.2 LD. D.R ARGUED IN SUPPORT OF THE ORDER OF THE LD. ASSESSING OFFICER WHILE AS LD. A.R. RELIED ON THE ORDER OF TH E LD. CIT (A) AND ALSO RELIED IN THE DECISION OF THE CASE CIT VS. CHI DAMBARAM PILLAI REPORTED 106 ITR 292, THE DECISION OF CIT VS. NSM S ANKARAPANDIAN REPORTED IN 222 ITR 289 & THE DECISION OF THE CASE CIT VS. V.SIVAKUMAR REPORTED IN 354 ITR 9. ITA NO.1031 /MDS/2012 14 6.3 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY P ERUSED THE MATERIALS AVAILABLE ON RECORD. THE DECISION CITED B Y THE LD. A.R. IN THE CASE OF CIT VS. CHIDAMBARAM PILLAI IS NOT APPLI CABLE TO THE FACTS OF THE CASE BECAUSE IT IS IN REGARD TO PAYMENT OF S ALARY BY THE PARTNERSHIP FIRM TO ITS PARTNERS AND APPLICABILITY OF RULE 24 OF THE INCOME TAX RULES, 1922. IN THE CASE V.SIVAKUMAR SU PRA, ALSO THE FACTS ARE NOT IDENTICAL. IN THAT CASE, THE ISSUE WA S WITH RESPECT TO PENALTY PROCEEDINGS U/S.271D OF THE ACT AGAINST THE LOAN TAKEN BY THE ASSESSEE FROM THE FIRM WHEREIN THE HONBLE JURI SDICTIONAL HIGH COURT HELD THAT THE ASSESSEES ACTION WAS BONAFIDE AND THERE WAS A REASONABLE CAUSE WITHIN THE MEANING OF SECTION-273B OF THE ACT AND THEREFORE PENALTY COULD NOT BE IMPOSED. FURTHER IN THE CASE CIT VS. NSM SANKARAPANDIAN SUPRA ALSO, THE FACTS ARE NOT ID ENTICAL BECAUSE IN THAT CASE THE ISSUE WAS WITH RESPECT TO SALARY P AID BY THE PARTNERSHIP FIRM TO ITS PARTNER WHO IS THE KARTA OF THE HUF REPRESENTING THE HUF IN THE FIRM AND THEREFORE STAN DARD DEDUCTION WAS DENIED ON SUCH SALARY BY THE LD.A.O WHICH WAS U PHELD BY THE HONBLE JURISDICTIONAL HIGH COURT. IN THE CASE BEF ORE US THE ISSUE IS ITA NO.1031 /MDS/2012 15 WITH RESPECT TO DEDUCTION OF TAX AT SOURCE U/S.194- I OF THE ACT. SECTION 194-I OF THE ACT PROVIDES THAT TAX HAS TO B E DEDUCTED AT SOURCE ON PAYMENT OF RENT BY AN ASSESSEE WHO IS NOT AN INDIVIDUAL OR A HUF AT THE SPECIFIED RATE. IN THIS CASE, THE ASSE SSEE IS A FIRM ASSESSABLE UNDER THE PROVISIONS OF THE ACT AND THER EFORE BOUND TO DEDUCT TAX AT SOURCE ON PAYMENT OF RENT TO ITS PART NERS WHO ARE INDIVIDUALS AND DISTINCT ASSESSABLE ENTITIES AS HEL D BY THE LD. ASSESSING OFFICER. IT IS PERTINENT TO MENTION THAT THE PROVISIONS OF TDS REPRESENT AN ALTERNATIVE AND MORE EFFICIENT T AX COLLECTION MECHANISM FOR THE GOVERNMENT. NEITHER PROVISIONS OF TDS IS A SEPARATE CHARGE NOR LEVY IN ADDITION TO INCOME TAX UNDER THE ACT. NON-COMPLIANCE OF THE PROVISIONS OF TDS WILL RESULT IN DISALLOWANCE U/S 40(A)(IA) OF THE ACT, RISING OF DEMAND U/S.201( 1) OF THE ACT, CHARGING OF INTEREST U/S.201(1A) OF THE ACT AND LE VY OF PENALTY U/S.271C OF THE ACT. THERE IS NO PROVISION UNDER TH E ACT TO SUGGEST THAT THE RELATIONSHIP BETWEEN THE TWO ASSESSABLE EN TITIES WILL DETERMINE THE APPLICABILITY OF SECTION.194-I OF THE ACT. THEREFORE, WE HEREBY SET ASIDE THE ORDER OF THE LD. CIT (A) AND C ONFIRM THE ORDER OF THE LD. ASSESSING OFFICER ON THIS ISSUE. ITA NO.1031 /MDS/2012 16 7. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED ON 5 TH AUGUST, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 5 TH AUGUST, 2015. K S SUNDARAM. % '+./ 0 /'+ /COPY TO: 1. #$ /APPELLANT 2. '(#$ /RESPONDENT 3. ) 1+ () /CIT(A) 4. ) 1+ /CIT 5. /4 '+5 /DR 6. 6! 7* /GF