Maiden Leathers, CHENNAI V. ACIT, CHENNAI

ITA 110/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9397 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2016
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: K MEENATCHI SUNDARAM
• Keywords: Permanent establishment
• Section: 143(3)

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 110/MDS/2016 / ASSESSMENT YEAR :20 1 0 - 11 M/S. MAIDEEN LEATHERS C/O. SUNDARAM & NARAYANAN CHARTERED ACCOUNTANTS, 18, BALAIAH AVENUE, LUZ CHURCH ROAD, MYLAPORE, CHENNAI 600 004. [PAN: A A OFM3006E ] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX , NON CO RPORATE CIRCLE 5, CHENNAI 600 006 . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI K. MEENATCHI SUNDARAM, C.A. / RESPONDENT BY : SH RI P. RADHAKRISHNAN , J CIT / DATE OF HEARING : 07 . 0 3 .201 6 / DATE OF P RONOUNCEMENT : 06 . 0 5 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH I S APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 5 , CHENNAI , DATED 2 9 . 1 2 .20 1 5 RELEVANT TO THE ASSESSMENT YEAR 20 1 0 - 11 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF FOREIGN AGENCY COMMIS SION PAID BY THE ASSESSEE. I.T.A. NO . 110 /M/ 16 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND MANUFACTURING OF LEATHER AND FILED ITS RETURN FOR THE ASSESSMENT YEAR 2010 - 11 ON 30.09.2010 ADMITTING A TOTAL INCOME OF .26,33,690/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND SERVED ON THE ASSE SSEE. IN RESPONSE THERETO, THE ASSESSEE FILED ALL DETAILS AS REQUIRED BY THE ASSESSING OFFICER. AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT DEDUCTED TDS TOWARDS FOREIGN AGENCY COMMISSION P AID BY THE ASSESSEE TO THE FOREIGN AGENT . THE ASSESSING OFFICER WAS OF THE OPINION THAT THE COMMISSION PAYMENT FALL WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND HELD THAT THE PAYMENT MADE BY THE ASSESSEE IS AN INCOME DEEMED TO AC CRUE OR ARISE IN INDIA FOR THE NON - RESIDENT. IN THESE CIRCUMSTANCES, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS, BUT THE ASSESSEE FAILED TO DEDUCT THE TDS. THEREFORE, BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ASSESSING OFFICER MADE THE D ISALLOWANCE TOWARDS FOREIGN AGENCY COMMISSION AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT BY DETERMIN ING THE TOTAL INCOME OF THE ASSESSEE AT .49,41,967/ - . I.T.A. NO . 110 /M/ 16 3 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) . AFTER VERIFYING THE DETAILS AND INVOICES FILED BEFORE THE LD. CIT(A), THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UPHELD. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSEE HAS NOT DEDUCTED TDS ON THE COMMISSION PAID TO FOREIGN AGENTS AND THEREFORE , BY INVO KING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE COMMISSION PAID TO THE FOREIGN AGENTS . THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAS PAID THE AGENCY COMMISSION TO FOREIGN AGENTS (5 NOS.) AS WELL AS LOCAL AGENTS SEPARATELY FOR THE SERVICES AVAILED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HAS OBSERVED AS UNDER: 5.2 FROM THE INVOICES BASED ON WHICH THE FOREIGN AGENTS COMMISSION WAS PAID, IT IS EVIDENT THAT (I) THE FOREIGN AGENTS WERE ENGAGED NOT BY THE ASSESSEE BUT BY THE INDIAN AGENTS. (II) ASSESSEE HAS NO LIABILITY TO PAY THE COMMISSION TO THE FOREIGN AGENTS. (III) ASSESSEE HAS TO PAY THE COMMISSIONER TO THE INDIAN AGENTS (IV) INDIAN AGENTS ON RECEIVING THE COMMISSION FROM THE ASSESSEE SHOULD PAY THE PROPORTIONATE COMMISSION TO THE FOREIGN AGENTS FOR THE SERVICES RENDERED BY THEM. (V) HOWEVER THE INDIAN AGENTS ASKED THE ASSESSEE TO PAY THE PROPORTIONATE COMMISSION TO THE FOREIGN AGENTS DIRECTLY TO THEM AS PER THE INVOICE SENT BY THEM. (VI) IN FACT THE ENTIRE COMMISSION IS PAY A BLE TO THE INDIAN AGENTS ONLY. I.T.A. NO . 110 /M/ 16 4 HENCE THE CASE LAWS REFERRED TO BY THE ASSESSEE ARE NO T APPLICABLE TO THE FACTS OF CASE OF THE ASSESSEE. 6. ASSESSEE DEDUCTED THE TDS ONLY ON THE COMMISSION PAID TO THE INDIAN AGENTS. HE DID NOT DEDUCT THE TDS ON THE PORTION OF THE COMMISSION PAID DIRECTLY TO THE FOREIGN AGENTS, ALTHOUGH THE SAME IN FACT S HOULD HAVE BEEN PAID TO THE INDIAN AGENTS WHO IN TURN SHOULD HAVE PASSED ON TO THE FOREIGN AGENTS, AS THE FOREIGN AGENTS WERE ENGAGED NOT BY THE ASSESSEE BUT BY THE INDIAN AGENTS. 7. FOR THE ABOVE MENTIONED REASONS THE ACTION OF THE ASSESSING OFFICER TO DISALLOW THE COMMISSION PAID TO FOREIGN AGENTS ( .22,33,277/ - ) U/S 40(A)(IA) FOR NOT DEDUCTING TDS IS UPHELD. 6. FROM THE ORDERS OF AUTHORITIES BELOW, IT IS NOT CLEAR AS TO WHAT SERVICES THE AGENTS HAVE RENDERED TO THE ASSESSEE . BEFORE CONCLUDING THAT T HE TDS WAS NOT DEDUCTED TO THE FOREIGN AGENCY COMMISSION MADE BY THE ASSESSEE, ON VERIFICATION OF RECORDS, THE ASSESSING OFFICER SHOULD HAVE RECORDED AS TO WHETHER THE ASSESSEE HAS PAID THE BROKERAGE PAYMENT OR FEES FOR TECHNICAL SERVICES RENDERED OR WHETH ER THE FOREIGN AGENTS HAVE THEIR BACK OFFICE IN INDIA OR PERMANENT ESTABLISHMENT IN INDIA AS OBSERVED BY THE LD. CIT(A) THAT THE COMMISSION PAYMENTS WERE ROUTED THROUGH INDIAN AGENTS. IF THERE ARE SERVICES RENDERED BY FOREIGN AGENTS, WHO HAVE NO PERMANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECTION IN INDIA BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUED OR AROSE IN INDIA, THEN IT IS EXEMPTED, IF THE ASSESSEE IS ABLE TO PROVE THAT THE SERVIC ES WERE RENDERED BY THOSE FOREIGN AGENTS AT ABROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE FOREIGN AGENTS HAVE RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN I.T.A. NO . 110 /M/ 16 5 INDIA BY PRODUCING RELEVANT RECORD S CORRESPONDENCE TOOK BETWEEN THE PARTIES. WITHOUT EXAMINING THESE DETAILS, WE ARE NOT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE FOREIGN AGENTS. THEREFORE, IT IS APPROPRIATE TO REMIT THE ENTIRE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO THE ASSESSEE TO PROVE THAT IT WAS SALE COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AND THE ASSESSING OFFICER IS DIRECTED TO MAKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE FOREIGN AGENTS AND THE PAYMENTS MADE THEREOF AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW BY KEEPING IN MIND THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF ACIT V. EURO LEDER FASHIONS LTD. [2016] 156 ITD 208 [CHENNAI]. WITH THESE OBSERVATIONS, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THE 6 TH MAY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 06 . 0 5 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / C IT(A) , 4. / CIT , 5. / DR & 6. / GF.