SUKANI ENTERPRISES, MUMBAI V. ACIT 12(3), MUMBAI

ITA 1330/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8429 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 14-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALLA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R S SYAL, AM & SHRI VIJAY PAL RAO, JM ITA NO. 1330/MUM/2011 (ASST YEAR 2007-08) SUKANI ENTERPRISES 401-402 TULSIANI CHAMBERS FREE PRESS JOURNAL ROAD MUMBAI 21 VS THE ASST COMMR OF INCOME TAX 12(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAAFS3880Q ASSESSEE BY SHRI P J PARDIWALLA REVENUE BY MS NEERUJA PRADHAN DT.OF HEARING 11 TH OCT 2012 DT OF PRONOUNCEMENT 30 TH OCT 2012 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 16.11.2010 OF THE COMMISSIONER OF INCOME TAX (APPEALS) FOR THE AS SESSMENT YEAR 2007-08. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS: 1) (I) THE ORDER OF LEARNED CIT(A) IS BAD IN LAW AS IT WAS PASSED WITHOUT GRANTING AN OPPORTUNITY TO THE APPELLANT. (II)THE LEARNED CIT(A) WITHOUT GRANTING AN OPPORTUNI TY TO THE APPELLANT TO EXPLAIN THE NATURE OF SERVICES ACTUALLY RENDERED BY I TS AGENT M/S EL TABALDI CO LTD. PROCEEDED TO HOLD THAT M/S EL TABALDI CO LTD. RENDERED COMPOSITE SERVICES COMPRISING OF COMMISSION AGENCY AND FOR PROMO TING SALES OF APPELLANT IN FOREIGN COUNTRIES. 2) ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED CI T(A) ERRED IN: A) CONFIRMING THE DISALLOWANCE OF RS. 63,95,467/- M ADE BY THE AC UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT,1961(ITA) WI TH REGARD TO COMMISSION PAID TO M/S EL TABALDI CO LTD. ITA NO.1330/M/2011 SUKANI ENTERPRISES 2 3 AT THE TIME OF HEARING, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE DOES NOT PRESS GROUND NO.1 AND THE SAME MA Y BE DISMISSED AS NOT PRESSED. THE LD DR HAS NO OBJECTION, IF THE GROUND NO.1 OF T HE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCORDINGLY, WE DISMISS THE GROUND NO.1 BEING NOT PRESSED. 4 GROUND NO.2 IS REGARDING DISALLOWANCE MADE U/S 40 (A)(I) . 4.1 THE ASSESSEE IS A FIRM AND ENGAGED IN THE BUSIN ESS OF TRADING, IMPORTING, EXPORTING OF ENGINEERING GOODS, AUTO PARTS, STAINLE SS STEEL ITEMS, PLASTIC ITEMS AND OTHER ITEMS. THE ASSESSING OFFICER FOUND THAT DURI NG THE YEAR THE ASSESSEE PAID A SUM OF ` 63,95,467/- TO M/S EI TABALDI CO LTD, WITHOUT DED UCTION OF TDS. THE ASSESSING OFFICER ACCORDINGLY ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE PAYMENT MADE TO M/S EI TABALDI CO LTD SHOULD NOT BE DISALLOWED FOR NON DEDUCTION OF TDS. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE ASSESSEE APPOINTED M/S EI TABALDI CO LTD AS SALES AGENT REGARDING BUYING AND SELLING OF GOODS IN THE TERRITORY OF SUDAN AND TEHAD AND PAID COMMISSION. IT WAS FURTHE R SUBMITTED THAT THE SERVICES RENDERED BY M/S EI TABALDI CO LTD IN THE COURSE OF BUYING AND SELLING OF GOODS IN THE TERRITORIES OF SUDAN AND TEHAD WHICH ARE LOCATED I N AFRICA AND THEREFORE, NOT LIABLE TO TAX IN INDIA. THE ASSESSEE REFERRED CBDT CIRCUL AR NO.23 OF 1969 AND 786 OF 2000 AND SUBMITTED THAT IT HAS BEEN CLARIFIED THAT COMMI SSION PAYABLE TO FOREIGN AGENTS FOR THE SERVICES CARRIED OUTSIDE INDIA IS NOT LIABL E TO TAX IN INDIA AND HENCE THE TAX HAS NOT BEEN WITHHELD. 4.2 THE ASSESSING OFFICER DID NOT AGREE WITH THE CO NTENTION OF THE ASSESSEE AND WAS OF THE VIEW THAT THE PAYMENT WAS MADE TO THE SA ID PARTY AGAINST THE SERVICES OF CATERING ALL TENDER BUSINESS OF THE ASSESSEE FOR TH E TERRITORY OF SUDAN AND TEHAD AS ITA NO.1330/M/2011 SUKANI ENTERPRISES 3 WELL AS THE GROUND WORK AND OTHER EFFORTS IN MARKET ING AND SELLING OF THE ASSESSEES PRODUCTS IN THE ABOVE TERRITORIES. ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE SERVICES OFFERED BY M/S EI TABALDI CO LTD ARE COVE RED UNDER MANAGERIAL SERVICES THAT ARE INCLUDED IN FEE FOR TECHNICAL SERVICES DE FINED IN EXPLANATION 2 U/S 9(1(VII) OF THE I T ACT AND DISALLOWED ` 63,95,467/- U/S 40(A)(I) OF THE I T ACT. 4.3 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND HELD THAT THE ASSESSEE HAS PAID TO M/S EI TABALDI CO LTD A COMPOSITE AMOUNT INCLUDING FEES FOR TECHNICAL SERVICES WHICH IS TAXABLE AND FOR WHICH THE ASSESSEE WAS OBL IGED TO DEDUCT TAX AT SOURCE U/S 195 OF THE I T ACT. 5 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE PAYMENT WAS ONLY IN VIEW OF COMMISSION AGENT SERVICES RENDERED TO TH E ASSESSEE AS PER THE AGREEMENT DATED 1.10.2004 ENTERED INTO BY THE PARTI ES. THE ASSESSEE HAS APPOINTED M/S EI TABALDI CO LTD AS A SELLING AGENT TO ASSIST THE PRINCIPAL IN SELLING ENGINEERING GOODS, AUTO PARTS, STAINLESS STEEL ITEM S, PLASTIC ITEMS AND ANY OTHER ITEM IN THE TERRITORIES OF SUDAN AND TEHAD. UNDER THE AGREEMENT, THE AGENT IS REQUIRED TO FIND OUT THE PROSPECTIVE BUYERS IN THESE TERRITORIE S AND ACCORDINGLY INFORM THE ASSESSEE ABOUT ANY TENDER FLOATED IN THE ABOVE SAID TERRITORIES FOR THE SUPPLY OF THE GOODS BY THE ASSESSEE. THE LD AR HAS REFERRED VARI OUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT BOTH THE PARTIES MUTUALLY AGREED TO THE PAYMENT OF COMMISSION TO SELLING AGENT ON FOB VALUE WHICH MAKES IT CLEAR THA T THE PAYMENT WAS PURELY IN THE NATURE OF COMMISSION PAID TO THE AGENT FOR THE SERV ICES RENDERED OUTSIDE INDIA WHICH ARE NOT TAXABLE IN INDIA. HE HAS FURTHER POI NTED OUT THAT NO DISALLOWANCE HAS ITA NO.1330/M/2011 SUKANI ENTERPRISES 4 BEEN MADE BY THE ASSESSING OFFICER IN THE EARLIER Y EAR AND THEREFORE, PROVISIONS OF SEC. 195 OF THE I T ACT ARE NOT APPLICABLE. 5.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ASSESSING OFFICER HAS REFERRED THE SUBMISSIONS OF THE ASSESSEE AND POINTE D OUT THAT M/S EI TABALDI CO LTD CATERS ALL TENDER BUSINESS OF THE ASSESSEE FOR THE TERRITORY OF SUDAN AND TEHAD AND ALSO CARRIED OUT ALL GROUND WORK, EFFORTS FOR SALE S PROMOTION OF THE ASSESSEES PRODUCT AT ITS OWN EXPENSES IN THESE TERRITORIES. ACCORDINGLY, THE ASSESSING OFFICER HAS HELD THAT THE SERVICES PROVIDED BY M/S EI TABA LDI CO LTD IS IN THE NATURE OF MANAGERIAL SERVICES AND THE PAYMENT FALLS UNDER THE TERMS FEE FOR TECHNICAL SERVICES AS PER THE I T ACT. THE LD DR HAS FURTH ER SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT THE P AYMENTS WERE MADE FOR PROVIDING COMPOSITE SERVICES. SHE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AS PER THE AGREEMENT DATED 1.10.2004, THE ASSESSEE HAS APPOINTED M/S EI TABALDI CO LTD AS SELLING AGENT FOR PROVIDING SELL ING AND MARKETING ASSISTANCE IN THE TERRORISES OF SUDAN AND TEHAD . THE RELEVANT CLAU SES OF THE AGREEMENT ARE REPRODUCED AS UNDER: 1 PRINCIPAL HEREBY APPOINTS M/S EI TABALDI CO LTD AS THE NON-EXCLUSIVE SELLING AGENT TO ASSIST THE PRINCIPAL IN SELLING EN GINEERING GOODS, AUTO PARTS, STAINLESS STEEL ITEMS, PLASTIC ITEMS AND AN OTHER I TEM IN THE TERRITORY OF SUDAN TEHAD. 2. THE PRINCIPAL SHALL INTIMATE THE SELLING AGENT TH E GOODS IT INTENDS TO SELL IN THE TERRITORY MENTIONED IN THE SECOND SCHEDUIE. THE PRINCIPAL REQUIRES THE SELLING AGENT TO PROSPECT FOR BUYERS IN THE AFORESAI D TERRITORY. THE SELLING AGENT SHALL ALSO BE REQUIRED TO INFORM THE PRINCIPAL ABOUT ANY TENDER FLOATED IN THE AFORESAID TERRITORIES FOR THE AFORESAID GOODS. FOR THE SAME, THE PRINCIPAL ITA NO.1330/M/2011 SUKANI ENTERPRISES 5 AUTHORIZES SELLING AGENT TO UNDERTAKE PRELIMINARY GRO UND WORK INCLUDING PROMOTION ACTIVITY AT HIS OWN EXPENSE. 3 AFTER IDENTIFYING THE PERSPECTIVE BUYERS, THE SELL ING AGENT SHALL FORWARD THE DETAILS OF THE BUYER TO THE PRINCIPAL. THE PRINCI PAL SHALL THEN DEAL DIRECTLY WITH THE PARTIES AS IDENTIFIED BY THE SELLING AGENT, FROM TIME TO TIME FOR SALE OF THE SAID GOODS AND THE QUANTITIES THEREOF UNDER THE INTIMATION TO THE SELLING AGENT FOR FURTHER FOLLOW UP. 4 THE SELLING AGENT SHALL FOLLOW UP WHEREVER REQUIRED TO ENSURE SMOOTH COMPLETION OF THE TRADE AND SHALL ACT AS EFFICIENTLY AND EXPEDITIOUSLY AS POSSIBLE IN THE BEST INTEREST OF THE PRINCIPAL. 5. THE PRINCIPAL SHALL PAY TO THE SELLING AGENT COM MISSION AT THE RATE MUTUALLY AGREED ON THE FOB VALUE AND SAME SHALL BE COMMUNICA TED TO THE SELLING AGENT ALONG WITH THE COPY ORDER. THE COMMISSION WOU LD BE PAID DIRECTLY TO THE SELLING AGENTS DESIGNATED BANK ACCOUNT IN ITS COUNTRY OF INCORPORATION. 6.1 IT IS CLEAR FROM THE CLAUSES OF THE AGENCY AGRE EMENT THAT THE PAYMENT WAS TO BE MADE AS AGREED BY THE PARTIES ON THE FOB VALUE W HICH CLEARLY INDICATES THAT THE PAYMENT WAS BASED ON THE EXPORT TURNOVER ON THE FOB VALUE AND NO SEPARATE PAYMENT EITHER PAYABLE AS PER THE AGREEMENT OR PAID BY THE ASSESSEE EXCEPT A CERTAIN PERCENTAGE ON THE INVOICE OF THE AMOUNT. T HE ASSESSEE HAS FILED THE DETAILS OF THE PAYMENTS WHICH CLEARLY SHOW THAT THE PAYMENT WAS MADE AT CERTAIN PERCENTAGE ON EXPORT OF GOODS RANGING FROM 5% TO 12 %. THEREFORE, THE PAYMENT IS MADE AS PER THE SALES FINALLY EFFECTED IN THESE TWO TERRITORIES AND NOT AS PER THE SERVICES RENDERED BY M/S EI TABALDI CO LTD. 6.2 IT IS EVIDENT FROM THE DETAILS OF PAYMENT AS WE LL AS FROM THE CONTENTS OF THE TERMS AND CONDITIONS OF THE AGREEMENT THAT THE PAYM ENT WAS MADE ON THE BASIS OF THE SALES TURNOVER EFFECTED IN THESE FOREIGN COUNTR IES NAMELY SUDAN AND TEHAD AND THE PAYMENT IS NOT DE-HORSE THE PERCENTAGE OF TURNO VER FOR ANY SERVICES RENDERED BY M/S EI TABALDI CO LTD . THEREFORE, IT CANNOT BE SAID THAT THE PAYMENT WAS MADE FOR ANY MANAGERIAL OR FOR TECHNICAL SERVICES RENDER ED BY M/S EI TABALDI CO LTD. ITA NO.1330/M/2011 SUKANI ENTERPRISES 6 7 IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE SAID PAYMENT WAS IN THE NATURE OF COMMISSION TO THE SELLING AGENT AND THERE FORE, NOT LIABLE TO TAX IN INDIA IN THE HANDS OF THE RECIPIENT AND ACCORDINGLY, NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. HENCE, THE DISALLOWANCE U/S 40(A)(IA) IS DE LETED. 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30 TH ,DAY OF OCT 2012. SD/- SD/- ( R S SYAL ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH OCT 2012 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI