ACIT, CHENNAI V. M/s. Pradeep Dadha Group Companies Private Limited, CHENNAI

ITA 135/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77373 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 28-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: D ANAND
• Keywords: Depreciation; Advance ruling

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 135/MDS/2013 ( / ASSESSMENT YEAR: 2009-10) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), 4 TH FLOOR NEW BLOCK, 121, M.G.ROAD, CHENNAI-600 034. VS M/S. PRADEEP DADHA GROUP COMPANIES PVT. LTD.( FORMERLY KNOWN AS TDP TECHNOLOGIES PVT.LTD.) 250, LLOYDS ROAD, ROYAPETTAH, CHENNAI-600 014. PAN: AABCT5448B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. GURU BHASHYAM, JCIT /RESPONDENT BY : MR. D. ANAND, ADVOCATE / DATE OF HEARING : 29 TH MAY, 2014 /DATE OF PRONOUNCEMENT : 27 TH JUNE, 2014 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI (I/C) DATED 16.10.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT ROAD TAX AS WELL AS INSURANCE WAS NOT TO BE DISALLO WED AS IT WAS NEVER CLAIMED AS AN ITEM OF EXPENDITURE BY THE 2 ITA NO. 135/MDS/20 13 ASSESSEE. THE ASSESSING OFFICER WHILE COMPLETING T HE ASSESSMENT NOTICED THAT SHRI PRADEEP DADHA, WHO IS THE DIRECTOR OF THE ASSESSEE COMPANY, HAS PURCHASED A CAR AND GIVEN IT TO THE ASSESSEE COMPANY. THE CAR IS USED B Y THE COMPANY FOR BUSINESS USE. THE LOAN TAKEN BY MR. PR ADEEP DADHA WAS REPAID BY THE ASSESSEE IN INSTALLMENTS. THE ASSESSEE COMPANY IS ALSO CLAIMING DEPRECIATION ON S UCH CAR. THE ASSESSING OFFICER NOTICED THAT ASSESSEE DEBITED DEPRECIATION, INTEREST, INSURANCE AND ROAD TAX, FUE L EXPENSES IN COMPANYS BOOKS AND SINCE THEY ARE IN THE NATURE OF PERSONAL EXPENSES, ASSESSING OFFICER DISALLOWED THE SAID EXPENSES. THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS) CONTENDING THA T ROAD TAX AND INSURANCE WAS NEVER CLAIMED AS AN ITEM OF EXPENDITURE BY THE ASSESSEE COMPANY. IT WAS THE SUB MISSION OF THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME T AX (APPEALS) THAT ROAD TAX AND INSURANCE WAS CAPITALI ZED AND THEREFORE, THERE IS NO JUSTIFICATION IN DISALLOWING THE SAME. THE COMMISSIONER OF INCOME TAX (APPEALS) ON EXAMINI NG THE EVIDENCES PRODUCED BEFORE HIM ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND DELETED THE DISALLO WANCE. 3 ITA NO. 135/MDS/20 13 3. DEPARTMENTAL REPRESENTATIVE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN DELETING THE DISALLOWANCE WITHOUT GRANTING AN OPPO RTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE EVIDENCES WHIC H WERE PRODUCED FOR THE FIRST TIME BEFORE HIM. DEPARTMENTA L REPRESENTATIVE SUBMITS THAT THERE IS A VIOLATION O F RULE 46A . 4. COUNSEL FOR THE ASSESSEE HAS NO OBJECTION FOR R EMITTING THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R FOR VERIFICATION. 5. IN SUCH CIRCUMSTANCES, WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO V ERIFY AS TO WHETHER THE ASSESSEE CLAIMED ROAD TAX AND INSURANCE AS EXPENDITURE DURING THE ASSESSMENT YEAR 2009-10 AND DECIDE THE ISSUE AFTER VERIFYING THE EVIDENCES PRODUCED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 4 ITA NO. 135/MDS/20 13 6. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS T HAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT IN RESPECT OF COMMISSION PAID TO NON-RESIDENT COMPANIE S. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED SALES COMMISSION PAID TO NON-RESIDENTS A S THE ASSESSEE DID NOT DEDUCT TDS. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE SHOULD HAVE DEDUCTED TDS UND ER SECTION 195 OF THE ACT AND SINCE THE ASSESSEE FAILE D TO DEDUCT TDS PROVISIONS UNDER SECTION 40(A)(I) OF THE ACT ARE ATTRACTED. THE ASSESSING OFFICER ON GOING THROUGH T HE AGENCY AGREEMENTS WAS OF THE VIEW THAT SERVICES RENDERED B Y THE NON-RESIDENTS AS PER THE TERMS OF AGREEMENT NOT ONL Y INVOLVES SOURCING OF ORDERS FROM CUSTOMERS FOR ASSE SSEES PRODUCTS BUT ALSO INCLUDE RENDERING OF SPECIALIZED TECHNICAL SERVICES WHICH REQUIRE SPECIALIZED PROVISION OF TEC HNICAL KNOWLEDGE, EXPERIENCE, SKILL KNOWHOW. THEREFORE ASS ESSING OFFICER WAS OF THE VIEW THAT PROVISIONS OF SECTION 9(1)(VII) HAVE APPLICATION IN THIS CASE. ON APPEAL, COMMISSI ONER OF INCOME TAX (APPEALS) DELETED THE DISALLOWANCE AGAI NST WHICH REVENUE IS IN APPEAL BEFORE US. 5 ITA NO. 135/MDS/20 13 7. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE PAID SALES COMMISSION TO THE NON-RESIDENTS FOR THE SERVI CES RENDERED BY THEM IN PROCURING EXPORT SALES AND THE NON- RESIDENT INDIANS HAVE NOT RENDERED ANY TECHNICAL SE RVICES TO THE ASSESSEE. COUNSEL SUBMITS THAT NON-RESIDENTS HA VE NO ESTABLISHMENTS IN INDIA WHATSOEVER, THEY ARE ALL SI TUATED OUTSIDE INDIA, SERVICES WERE RENDERED OUTSIDE INDI A AND THE SALES COMMISSION PAID TO NON-RESIDENT COMPANIES IS NOT TAXABLE IN INDIA AND THEREFORE PROVISIONS OF SECTI ON 195 HAVE NO APPLICATION. COUNSEL PLACES RELIANCE ON THE DECI SIONS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. EAGLE PRESS P.LTD. IN ITA NO.776/MDS/2008 DATED 6.6 .2011, AND IN THE CASE OF ACIT VS. FARIDA SHOES PVT. LTD. IN ITA NO.359/MDS/2013 DATED 11.4.2013 8. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING SALE S COMMISSION UNDER SECTION 40(A)(I) OF THE ACT FOR WA NT OF DEDUCTION OF TDS UNDER SECTION 195 OF THE ACT. DEP ARTMENTAL REPRESENTATIVE SUBMITS THAT NON-RESIDENT COMPANIES HAVE 6 ITA NO. 135/MDS/20 13 RENDERED TECHNICAL SERVICES TO THE ASSESSEE AND NO T MERE PROCUREMENT OF SALES BY THEM. 9. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THIS ISSUE HAS BEEN EL ABORATELY CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEA LS) WITH REFERENCE TO THE AGENCY AGREEMENTS AND THE CON TENTION RAISED BY THE ASSESSING OFFICER AND DELETED THE DIS ALLOWANCE OBSERVING AS UNDER:- 7) NOW CONSIDERI N G THE ISSUE WHETHER THE COMMISSION PA I D TO THE TWO NON-RESIDENT COMPANIES ARE MERE SALES COMMISSION OR FEES FOR TECHNICAL SERVICES . FEES FO R TECHNICAL ' SERVICES ARE DEF I NED AS CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL , TECHNICAL OR CONSULTING SERVICES . THE COMMISSION UNDER CONSIDERATION WAS PAID IN TERMS OF TWO ' IDENTICALLY WORDED ' INTERNET MARKETING PARTICIPAT I ON AGREEMENT' ENTERED INTO BETWEEN THE TWO FOREIGN AGENTS AND THE APPELLANT . UNDER THE AGREEMENT, THE NON-RESIDENT AGENTS HAVE AGREED TO PROVIDE THE APPE LLANT .. COMPANY THE DETAILS OF ITS CUSTOMERS WHO WILL USE T HE FACILITIES OF THE APPELLANT. THE NON- RESIDENTS ARE ' NOT EXPECTED TO PROVIDE ANY OTHER ASSISTANCE TO THE APP ELLANT COMPANY. THE APPELLANT COMPANY IS FULLY RESPONSIBLE TO SUPPLY THE CUSTOMERS THE MEDICINES REQUIRED BY THEM . THE NON-R E SIDENT COMPANIES DO NOT PROVIDE ANY OTHER ASSISTANCE EXCEPT INFORMING THE APPELLANT ABOUT THE CUSTOMER SATISFACTION. 8 ) AS ALREADY STATED, THE APPELLANT COMPANY RETAINS , 80% OF THE SALE PROCEEDS AND REMITS THE REMAINING 20% T O THE TWO NON-RESIDENT COMPANIES. THIS WILL INDICATE THAT IT IS THE APPELLANT COMPANY WHO IS PROVIDING SERVICES TO THE CUSTOMERS OF THE NON-RESIDENT COMPANIES AND NOT VIC E- VERSA . IN FACT, CLAUSE 4 OF THE AGREEMENT WITH THE NON- RESIDENT COMPANIES STATES:- IN CONSIDERATION OF THE SERVICE PROVIDED TO R OR C (I.E. THE 7 ITA NO. 135/MDS/20 13 NON-RESIDENTS).. THE COMPENSATION SHALL BE AS FOLLOWS:- IT WOULD APPEAR THAT THE OBLIGATION OF THE TWO NON- RESIDENTS TOWARDS THEIR CUSTOMERS TO SUPPLY THE MEDICINES HAS BEEN ASSIGNED TO THE APPELLANT COMPANY. IN RETURN, THE A PPE L LANT COMPANY IS ALLOWED TO . RETAIN 80% OF ' THE SALE PROCEEDS TOWARDS THE COST OF MEDICINE SUPPLIED PLUS A REASON ABLE PROFIT MARGIN . THUS IT WOULD APPEAR THAT IT IS THE APPELLANT COMPANY WHO PROVIDES SERVICES TO THE NON - RESIDENT COMPANIES . 9) IN THE EARLIER PART ' OF THIS ORDER (VIZ . PAGE 5 (1) A REFERENCE HAS BEEN MADE TO THE DECISION , OF THE AUTHORITY FOR ADVANCE RULING IN SPAHI PROJECTS LTD . (315 ITR 374) . ' THE AUTHORITY FOR ADVANCE RULING , AFTER TAKING INTO , ACCOUNT SEVERAL DECISIONS OF SUPREME COURT HAS HELD THAT TH E SERVICES RENDERED BY A FOREIGN AGENT CANNOT BE CONS IDERED AS MANAGERIAL, TECHNICAL OR OF CONSULTANCY NATURE, HAVE ALREADY POINTED OUT THAT THE FACTS OF THE CASE CONS IDERED BY THE AUTHORITY FOR ADVANCE RULING ARE I DENTICAL TO THE FACTS OF THE APPELLANT COMPANY ' S CASE. 10) AFTER A CAREFUL EXAMINATION OF THE TERMS OF THE INTERNET MARKETING PARTICIPATION AGREEMENT AND AFTE R TAKING INTO ACCOUNT THE DECISION , OF THE AUTHORITY F O R ADVANCE RULING MENTIONED EARLIER, I HAVE NO HESITATION IN H OLDING THAT THE TWO NON-RESIDENT COMPANIES CANNOT BE CONSI DERED AS HAVING RENDERED ANY TECHNICAL SERVICE TO THE APP ELLANT COMPANY. 11) IN THE LIGHT OF THE ABOVE DISCUSSION , IT IS HELD THAT THE COMMISSION I N COME EA R NINGS BY THE TWO NON - RESIDENT COMPANIES CANNOT BE CO NSID ER E D TO HAVE ACCRUED OR ARISEN IN INDIA FOR PURPOSES OF S E C T I O N 9( 1 ) (I) . THE REFO R E , TH E NON- RESIDENT COMPANIES CANNOT BE C ON SI DE R E D T O HAV E AC C RU E D OR ARI S EN IN INDIA , FOR PURPOSES OF S E CTION 9(1 ) (I) . THU S TH E N O N - R ESI DENT COMPANIES ARE TO BE TREATED AS MERE SALES AGENTS AND T HEY CANNOT BE CONSIDERED TO HAVE RENDERED ANY TECHNICAL SERVICES TO THE APPELLANT COMPANY FOR THE PURPOSE OF SECTION 9(1 )(VII). THE COMMISSION INCOM E IS NOT LIABLE TO INCOME TAX IN INDIA AND HENCE THERE WAS N O NEED FOR DEDUCTION OF TAX AT SOURCE WHILE MAKING PAYMEN TS TO THE NON-RESIDENT COMPANIES TOWARDS THE COMMISSION EARNED BY THEM. SINCE THE APPELLANT WAS NOT REQUIR ED TO DEDUCT TAX AT SOURCE U/S 1 95, THE PAYMENTS OF COMMISSION 8 ITA NO. 135/MDS/20 13 OF RS . 3 , 17 , 1 0,6261- TO THE NON-RESIDENT COMPANIES CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. ACCORDINGLY , THE ASSESSING OFF I CER IS DIRECTED TO DELETE THE DISALLOWANCE MADE ULS 40(A) (I A), THUS ALLOWING THE GROUNDS OF APPEAL . 10. ON GOING THROUGH THE ABOVE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS), WE DO NOT FIND ANY VALID R EASON TO INTERFERE WITH HIS DECISION IN DELETING THE DISALLO WANCE UNDER SECTION 40(A)(IA) OF THE ACT. AS THE REVENUE HAS NO T CONTROVERTED ANY OF THE FINDINGS OF THE COMMISSIONE R OF INCOME TAX (APPEALS), WE UPHOLD THE ORDER OF THE COMMISSIONER AND REJECT THE GROUNDS OF APPEAL RAISE D BY THE REVENUE ON THIS ISSUE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY THE 27 TH DAY OF JUNE, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDR A PRASAD ) . ( ' )* ) ACCOUNTANT MEMBER / , JUDICIAL MEMBER/ ) , ) /CHENNAI, - /DATED, 27 TH JUNE, 2014 SOMU 9 ITA NO. 135/MDS/20 13 /0 10 /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. 2 () /CIT(A) 4. 2 /CIT 5. 0 6 /DR 6. /GF .