ACIT 22(1), MUMBAI V. CREATIONS BY SHANGAR, MUMBAI

ITA 1147/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1729 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Assessment Year: 2010-2011
• Appeal Filed On: 17-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Deemed to accrue or arise in india; Permanent establishment; Set aside
• Section: 195

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL I BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1147/MUM/2017 (ASSESSMENT YEAR 2010-11 ) ITA NO. 1148/MUM/2017 (ASSESSMENT YEAR 2011-12 ) ACIT-22(1), ROOM NO. 322, 3 RD PIRAMAL CHAMBERS, LALBAUG, PAREL, MUMBAI-400012. VS. M/S CREATIONS BY SHANGAR, 34, AURO VILLA, ST. ANDREWS ROAD, SANTACRUZ (W), MUMBAI-400054 . PAN: AACFC7957L APPELLANT RESPONDE NT APPELLANT BY : SHRI MANJUNATH KARKIHALLI (DR) RESPONDENT BY : SHRI NITESH JOSHI (AR) DATE OF HEARING : 10.05.2019 DATE OF PRONOUNCEMEN T : 31.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THESE TWO APPEAL BY REVENUE UNDER SECTION 253 OF TH E INCOME-TAX ACT (THE ACT) ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)- 34, MUMBAI DATED 08.11.2016 & 10.11.2016 FOR ASSESSMENT YEAR 2010-11 & 2011-12 RESPECTIVELY. IN BOTH THE APPEALS, THE REVENUE HAS RAISED THE IDENTICAL GROUNDS OF APPEAL EXCEPT VARIATION OF FIGURES OF DISALLOWAN CE/ADDITION UNDER SECTION 40(A)(I) OF THE ACT, THEREFORE, BOTH THE APPEALS WE RE CLUBBED, HEARD AND ARE DECIDED BY COMMON ORDER. WITH THE CONSENT OF PARTIE S, THE APPEAL FOR ASSESSMENT YEAR 2010-11 IS TREATED AS LEAD CASE. TH E ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 1147 & 1148 MUM 2017-M/S CREATIONS BY SHANGAR 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN-LAW, THE LEARNED CIT(APPEAL) ERRED IN DELETING THE ADDITION MADE BY THE AO ON EXPORT COMMISSION OF RS. 978,66,610/- PAID TO NON-RESIDENT AGENTS U/S 40(A)(I) OF THE ACT ON THE GROUND THAT PAYMENTS TO SUCH NON-RESIDEN T AGENTS WERE LIABLE TO TAX AND THE ASSESSEE HAS FAILED TO DEDUCT TAX THEREON. 2. THE APPELLANT, PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT GROUNDS OF APPEAL RAISED BY R EVENUE ARE COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. GU JARAT RECLAIM AND RUBBER PRODUCTS LTD. (ITA NO. 2116 OF 2013 & 169 OF 2014 DATED 08.12.2015, WHEREIN IT WAS HELD THAT COMMISSION PAI D TO NON-RESIDENT AGENT OUTSIDE INDIA FOR THE SERVICES RENDERED WERE NOT CH ARGEABLE TO TAX IN INDIA. THE LD AR FOR THE ASSESSEE ALSO FURNISHED THE COPY OF THE DECISION OF BOMBAY HIGH COURT IN CIT VS. GUJARAT RECLAIM AND RUBBER PR ODUCTS LTD. (SUPRA). 3. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE (DR) FOR THE REVENUE STRONGLY RELIED UPON THE ORDER OF ASSESSING OFFICER . 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. 5. BRIEF FACTS OF THE CASE LEADING TO THE DISALLOWANCE OF COMMISSION PAYMENTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFAC TURING OF EMBROIDERED FABRICS AND ALLIED PRODUCTS, FILED ITS RETURN OF IN COME DECLARING INCOME FROM BUSINESS & PROFESSION OF RS. 2,16,98,891/-. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS PAID COMM ISSION OF RS. 97,66,610/- ITA NO. 1147 & 1148 MUM 2017-M/S CREATIONS BY SHANGAR 3 ON WHICH NO TAX WAS DEDUCTED AT SOURCE. THE ASSESSI NG OFFICER FURTHER NOTED THAT ASSESSEE PAID COMMISSION TO THOSE PARTIES, WHO WERE THE RESIDENTS OF COUNTRY WHERE THE INDIA ENTERED INTO DOUBLE TAXATIO N AVOIDANCE AGREEMENT (DTAA). THE ASSESSEE WAS SHOW-CAUSED AS TO WHY THE PROVISION OF SECTION 195 OF THE ACT SHOULD NOT BE MADE APPLICABLE AS THE PARTIES TO WHOM THE COMMISSIONS WERE PAID WERE RENDERING THE SERVICES I N THE NATURE OF CONSULTANCY, TECHNICAL/CUSTOMER RELATIONSHIP SERVIC ES. THE ASSESSEE FILED ITS REPLY. THE ASSESSEE STATED THAT NONE OF THE PARTIES TO WHOM THE ASSESSEE HAS REMITTED COMMISSION PAYMENT/PAID COMMISSION PAYMENT HAD ANY PERMANENT ESTABLISHMENT IN INDIA. THEREFORE, THEY ARE NOT LIA BLE TO TAX IN INDIA. THE EXPLANATION FURNISHED BY ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER HOLDING THAT AS PER EXPLANATION TO SECTION 9(2) OF FINANCE ACT, 2007, THE INCOME OF NON-RESIDENT SHALL BE DEEMED TO ACCRUE IN INDIA AND SHALL BE INCLUDED IN TOTAL INCOME WHETHER OR NOT THE NON-RES IDENT HAS A RESIDENTS OR PLACE OF BUSINESS CONNECTION IN INDIA OR NON-RESIDE NT HAS RENDERED SERVICES IN INDIA. THE ASSESSING OFFICER BY REFERRING CIRCULAR NO. 7 OF 2009 DATED 20.10.2009 DISALLOWED THE COMMISSION PAYMENT PAID T O NON-RESIDENT HOLDING THAT NO TAX WAS DEDUCTED THEREON. 6. ON APPEAL BEFORE THE LD. CIT(A), THE ENTIRE ADDITIO N/DISALLOWANCE WAS DELETED HOLDING THAT THERE IS NO DISPUTE THAT THE SERVICES ARE RENDERED BY NON-RESIDENT OUTSIDE INDIA FOR PROCURING EXPORT ORDERS FROM CUST OMER OUTSIDE INDIA. THE PAYMENT TO SUCH NON-RESIDENT IS MADE OUTSIDE INDIA ON ACCOUNT OF SALE ITA NO. 1147 & 1148 MUM 2017-M/S CREATIONS BY SHANGAR 4 PERCENTAGE. THE NON-RESIDENT DOES NOT HAVE ANY GEOG RAPHICAL OR PERMANENT ESTABLISHMENT IN INDIA. TAX TREATY EXISTS WITH THE COUNTRY OF RESIDENTS OF NON-RESIDENT, RESIDENTS OF NON-RESIDENT, RESIDENTS OF ITALY, FRANC & JAPAN. THE LD. CIT(A) FURTHER CONCLUDED THAT PERUSAL OF THE AG REEMENTS WITH THE NON- RESIDENTS AGENT DISCLOSED THAT THE AGENTS WERE PROC URED ORDER FROM CUSTOMER BASED ON THE PRICE GIVEN BY THE ASSESSEE AND PASS S UCH ORDER TO ASSESSEE FOR A FIXED PERCENTAGE OF COMMISSION PAYABLE TO THE AGENT AT THE FOB VALUE OF THE INVOICE AND FOREIGN CURRENCY AFTER THE FULLY PAYMEN T HAS BEEN RECEIVED FROM THE CUSTOMERS. FROM THE TERM OF AGREEMENT, IT IS CL EAR THAT NATURE OF SERVICES RENDERED BY NON-RESIDENTS AGENT WAS FOR PROCURING B Y THEM. THE PAYMENTS MADE TO THEM ARE IN THE NATURE OF COMMISSION AS IS ALSO SPECIFICALLY MENTIONED IN THE AGREEMENT. THEREFORE, THE FINDING OF ASSESSING OFFICER THAT SERVICES PROVIDED BY COMMISSION AGENT FALLS IN THE CATEGORY OF MANAGERIAL OR CONSULTANCY AS DEFINED BY EXPLANATION 2 TO SECTION 9(I)(VII). BEING AGGRIEVED, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. 7. AS NOTED ABOVE, THE LD. DR FOR THE REVENUE RELIED U PON THE ORDER OF ASSESSING OFFICER AND THE LD. AR OF THE ASSESSEE SUBMITTED TH AT THE COMMISSION WAS PAID OUTSIDE INDIA OR SERVICES RENDERED BY THE COMM ISSION AGENT OUTSIDE INDIA AND ALSO RELIED ON THE DECISION OF HONBLE BOMBAY H IGH COURT IN CIT VS. GUJARAT RECLAIM AND RUBBER PRODUCTS LTD.(SUPRA). 8. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THERE IS N O DISPUTE THAT THE ASSESSEE ITA NO. 1147 & 1148 MUM 2017-M/S CREATIONS BY SHANGAR 5 APPOINTED COMMISSION AGENT OUTSIDE INDIA. THE ASSES SING OFFICER FAILED TO BRING ANY MATERIAL ON RECORD TO SHOW THAT THE SERVI CES PROVIDER HAS ANY BUSINESS PLACE IN INDIA OR THE SERVICES WERE NOT RE NDERED OUTSIDE INDIA BY THOSE COMMISSION AGENTS. THE HONBLE BOMBAY HIGH CO URT IN CIT VS. GUJARAT RECLAIM AND RUBBER PRODUCTS LTD. (SUPRA) HE LD THAT COMMISSION EARNED BY NON-RESIDENT AGENT WHO CARRIED ON THE BUS INESS OF SELLING INDIAN GOODS OUTSIDE INDIA CANNOT BE SAID TO HAVE DEEMED T O BE INCOME WHICH HAS ACCRUED OR ARISE IN INDIA. THE HONBLE JURISDICTIO NAL HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN CIT VS. TOSHOK U LTD. (158 ITR 525) ON IDENTICAL FACTS HELD THAT COMMISSION EARNED BY N ON-RESIDENT WHO CARRIED BUSINESS OF SELLING INDIAN GOODS OUTSIDE INDIA CANN OT BE SAID TO HAVE DEEMED INCOME WHICH HAS ACCRUED OR ARISING IN INDIA. CONSI DERING THE FACT AND THE LEGAL POSITION AS DISCUSSED ABOVE, WE AFFIRM THE OR DER OF LD. CIT(A). NON CONTRARY FACTS OR LAW IS BROUGHT TO OUR NOTICE TO T AKE OTHER VIEW. 9. IN THE RESULT, APPEAL OF REVENUE FOR ASSESSMENT YEA R 2010-11 IS DISMISSED. ITA NO. 1148/MUM/2017 FOR A.Y. 2011-12 10. AS WE HAVE NOTED ABOVE THE REVENUE HAVE RAISED IDEN TICAL GROUNDS OF APPEAL. THE FACTS OF THE CASE ARE UNDER CONSIDERATION IS TH AT IDENTICAL GROUNDS EXCEPT VARIATION OF FIGURES OF DISALLOWANCE, THEREFORE, CO NSIDERING THE PRINCIPLE OF CONSISTENCY, THE APPEAL FOR ASSESSMENT YEAR 2011-12 IS ALSO DISMISSED WITH SIMILAR OBSERVATION. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NO. 1147 & 1148 MUM 2017-M/S CREATIONS BY SHANGAR 6 ORDER PRONOUNCED IN THE OPEN COURT ON 31/05/2019. SD/- SD/- G.S. PANNU, PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 31.05.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR I BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI