The DCIT, Panchmahal Circle, Godhra V. M/s. Panchmahal Steel Ltd., Baroda

ITA 1396/AHD/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 2626 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: M J SHAH
• Keywords: Services rendered outside India

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.1396/AHD/2016 (ASSESSMENT YEAR : 2011-12) THE DCIT PANCHMAHAL CIRCLE GODHRA VS. PANCHMAHAL STEEL LTD. LANDMARK 7 TH FLOOR, RACE COURSE CIRCLE, BARODA [ PAN NO. AABCP 2643 Q] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI LALIT P. JAIN, SR.DR RESPONDENT BY : SHRI M.J. SHAH, AR DATE OF HEARING 06/08/2018 DATE OF PRONOUNCEMENT 09 / 1 0 /201 8 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL HAS BEEN FILED BY THE REVENUE BEFORE US AGAINST THE ORDER DATED 15.02.2016 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS)-4, VADODARA [LD.CIT(A) IN SHORT] FOR ASSESSMENT YEAR (AY) 2011 -12 ARISING OUT OF THE ORDER DATED 07.03.2014 PASSED BY THE ACIT, PANCHMAHAL CIRCLE, GODHRA CHALLENGING THE VALIDITY OF THE ORDER PASSED BY THE CIT(A) IN DELETING THE DISA LLOWANCE OF RS.55,23,900/- MADE BY THE AO ON ACCOUNT OF COMMISSION PAYMENT IN FOREIGN CURRENCY. 2. THE ASSESSEE-COMPANY AT THE RELEVANT TIME WAS EN GAGED IN THE BUSINESS OF MANUFACTURING OF STEEL AND SALE OF STEEL AND ITS P RODUCTS, BOTH DOMESTIC AS WELL AS EXPORT FILED ITS RETURN OF INCOME ON 27.09.2011 DECLARING TOTAL INCOME OF RS.NIL. THE SAME WAS PROCESSED U/S.143(1) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS 'THE ACT'). UPON SCRUTINY NOTICE U/S.142(1) OF THE ACT ALONG WI TH QUESTIONNAIRE WAS ISSUED TO THE ASSESSEE. IN FACT, THE ASSESSEE CLAIMED EXPENDITU RE OF COMMISSION PAYMENT OF RS.55,23,900/- IN FOREIGN CURRENCY. IT APPEARS THA T THE ASSESSEE HAS NOT DEDUCTED TAX AT - 2 - ITA NO.1396/AHD/2016 DCIT VS. M/S.PANCHMAHAL STEEL LTD. ASST.YEAR 2011-12 SOURCE ON SUCH COMMISSION MADE TO THE FOREIGN AGENT S. COMPLETE DETAILS OF COMMISSION PAID TO SUCH AGENTS AND THE TDS MADE WAS DIRECTED T O BE SUBMITTED BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS. UPON PERUSAL OF THE SAME, THE ASSESSEE WAS FURTHER ASKED TO GIVE REASONS AS TO WHY NO TAX WAS DEDUCTED IN RESPE CT OF SUCH PAYMENT TO COMMISSION AND FURTHER THAT WHY SUCH EXPENDITURE SHOULD NOT BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3. THE ASSESSEE FILED HIS SUBMISSIONS ON 06.02.2014 . CERTAIN DECISIONS OF THE HIGH COURTS WERE ALSO PLACED IN SUPPORT OF THE CLAIM OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER (AO) DISALLOWED SUCH COMMISSION OF RS.52,23 ,900/- MADE TO THE FOREIGN AGENTS AS COMMISSION AND ADDED THE SAME TO THE TOTAL INCOM E OF THE ASSESSEE AGAINST WHICH APPEAL HAS BEEN PREFERRED BY HE LD.CIT(A). THE LD. CIT(A) TOOK INTO CONSIDERATION THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM. FURTH ER THAT THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE PAYME NTS MADE TO THE COMMISSION AGENTS LOCATED IN FOREIGN COUNTRIES BASED ON THE CONFIRMAT ION LETTER AS WELL AS LETTER RECEIPT FROM THE FOREIGN AGENTS WHO HAD NO PERMANENT ESTABLISHME NT IN INDIA. THE FACT THAT THE FOREIGN AGENTS HAD DONE THE SERVICES IN THEIR COUNT RIES AND RECEIPT COMMISSION PAYMENTS FOR SUCH SERVICES RENDERED BY THEM IN THEIR COUNTRI ES FOR GETTING ORDER TO THE ASSESSEE WAS ALSO TAKEN INTO CONSIDERATION BY THE LD. CIT(A). H E FURTHER ADDED THAT THE PORTION OF SECTION 195 OF THE I.T. ACT CAME INTO FORCE FOR DED UCTING TDS ON FOREIGN PAYMENTS MADE BY THE RESIDENT ASSESSEE TO NON-RESIDENT AGENTS ONL Y TO THE PAYMENTS MADE TO THOSE NON- RESIDENTS IF THEIR INCOME IS CHARGEABLE UNDER THE I NCOME TAX LAW. HE HAS ALSO RELIED UPON CERTAIN DECISIONS PASSED BY THE HONBLE APEX C OURT IN THIS CONTEXT. FURTHER THAT SINCE THE ASSESSEES CASE IS COVERED BY THE DECISIO N OF HIS PREDECESSOR IN THE EARLIER ASSESSMENT YEARS 2001-02, 2003-04, 2004-05, 2005-06 , 2006-07, 2007-08, 2008-09 & 2009-10 FOLLOWING THE SAME LD. CIT(A) DELETED SUCH DISALLOWANCE OF COMMISSION TO THE TUNE OF RS.55,23,900/- PAID TO THE FOREIGN AGENTS BY THE ASSESSEE. - 3 - ITA NO.1396/AHD/2016 DCIT VS. M/S.PANCHMAHAL STEEL LTD. ASST.YEAR 2011-12 4. AT THE TIME OF HEARING OF THE INSTANT APPLICATIO N, THE LD. REPRESENTATIVE OF THE ASSESSEE PLACED BEFORE US THE DECISION PASSED BY TH E CO-ORDINATE BENCH IN THE REVENUES APPEAL BEING ITA NO.634/AHD/2017 FOR THE AY 2013-14 WHICH WAS DISMISSED AND THE ORDER PASSED BY THE LD.CIT(A) ALLOWING ASSESSEES A PPEAL WAS UPHELD. HE FURTHER PLACED THE SAME ORDER BEFORE US. 5. THE LD. DR RELIED UPON THE ORDER PASSED BY THE A SSESSING OFFICER. 6. WE HAVE HEARD THE REPRESENTATIVES OF THE RESPECT IVE PARTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE AL SO GONE THROUGH THE ORDER PASSED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE. IN T HE IDENTICAL SET OF FACTS, WHERE SIMILAR PAYMENTS WERE MADE TO THE FOREIGN AGENTS. THE RELE VANT PORTION OF THE SAID DECISION IS AS FOLLOWS:- 4. AT THE VERY OUTSET, THE LD.COUNSEL FOR THE ASSE SSEE CONTENDED THAT SIMILAR PAYMENTS WERE MADE IN THE ASSESSMENT YEARS 2001-02 TO 2009-10 AND 2011-12. DISPUTE IN ALL THESE YEARS EITHER AT THE INSTANCE OF THE REVENUE OR AT THE INSTANCE O F THE ASSESSEE TRAVELLED UPTO THE TRIBUNAL, AND CONSISTENTLY IT HAS BEEN HELD THAT ELEMENT OF INCOM E WAS NOT INVOLVED IN SUCH TRANSACTIONS. THUS, NON-RESIDENT COMMISSION AGENTS ARE NOT TAXABLE IN I NDIA BECAUSE THEY HAVE NOT CARRIED OUT ANY ACTIVITY IN INDIA. HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER IN THE ASSESSMENT YEAR 2009- 10. HE FURTHER POINTED OUT THAT THE LD.CIT(A) HAS MADE REFERENCE TO THE FACTS AND THE STATUS OF DISALLOWANCE OF SUCH COMMISSION PAYMENTS IN EARLIER YEARS. HE ALSO CONTENDED THAT ITAT, AHMEDABAD IN THE CASE OF DCIT VS. WELSPUN CORPORATI ON LTD., 77 TAXMANN.COM 165 (AHD) HAS CONSIDERED SIMILAR ASPECTS ELABORATELY. FACTS OF B OTH THESE CONCERNS ARE IDENTICAL. THEY ARE ALSO IN SIMILAR PRODUCTS, AND COMMISSION WAS PAID T O FOREIGN AGENTS. THE AO SOUGHT TO DISALLOW ON THE GROUND THAT PAYMENT MADE BY THE ASSESSEE WAS A FEE FOR TECHNICAL SERVICES AS PER SECTION 9 AND EVEN IF THE RECIPIENTS ARE NOT HAVING ANY PE IN INDIA OR ANY OTHER ESTABLISHMENT THEN ALSO THEIR SERVICES ARE BEING USED IN INDIA FOR SUPPLYIN G OF THE GOODS. THUS, THE PAYMENT MADE TO THEM, INVOLVED ELEMENT OF INCOME AND TDS OUGHT TO B E DEDUCTED. THIS STAND OF THE AO HAS NOT BEEN APPROVED BY THE CIT(A) AS WELL AS BY THE ITAT IN THE CASE OF WELSPUN CORPORATION LTD. (SUPRA). THE LD.COUNSEL FOR THE ASSESSEE PLACED ON RECORD COPY OF THE ORDER OF THE TRIBUNAL WHICH IS REPORTED IN 77 TAXMANN.COM 165 (AHD) AND 5 5 ITR (T) 405 (AHD). ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE AO. 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE CIT(A)S ORDER WOULD INDICATE THAT I DENTICAL ISSUE HAS BEEN CONSIDERED IN EARLIER YEARS. CONSISTENTLY, IT HAS BEEN HELD THAT PAYMENT S MADE BY THE ASSESSEE TO ALLEGED FOREIGN COMMISSION AGENTS DOES NOT INVOLVE ELEMENT OF INCOM E ASSESSABLE IN INDIA, AND THEREFORE, THERE IS NO OBLIGATION UPON THE ASSESSEE TO DEDUCT TDS. REFERENCE TO THE DECISION OF THE HONBLE - 4 - ITA NO.1396/AHD/2016 DCIT VS. M/S.PANCHMAHAL STEEL LTD. ASST.YEAR 2011-12 SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE NTRE P. LTD. V. CIT [2010] 327 ITR 456 (SC) WAS MADE. APART FROM CONSISTENCY, WE WOUL D LIKE TO MAKE REFERENCE TO THE FACTS NOTED IN THE HEAD NOTES OF THE JUDGMENT OF WELSPUN CORPOR ATION LTD. (SUPRA), WHICH READS AS UNDER: THE ASSESSEE-COMPANY WAS A GLOBAL MANUFACTURER OF S TEEL PIPES, PLATES AND COILS, OFFERING THE HIGHEST QUALITY OF PIPES. THE MANUFACT URING ACTIVITIES PERFORMED BY THE COMPANY WERE HIGHLY TECHNICAL IN NATURE. THE MANUFA CTURING OF SPECIALISED PIPE WAS A HIGHLY TECHNICAL ACTIVITY INVOLVING A HIGHLY-TECH NICAL COMPLEX EXERCISE OF TECHNOLOGY AND SKILLED LABOUR AND THE FINEST GRADE OF RAW MATERIALS. TO PROCURE ORDERS, THE COMPANY REQUIRED SPECIALIST AGENTS WHO COULD UNDERSTAND THE TECHNICAL NITTY-GRITTY OF THE ASSESSEE'S BUSINESS AND COULD D EMONSTRATE THE ASSESSEE'S BUSINESS PROFILE AND THE QUALITY OF THE PRODUCTS OF THE ASSE SSEE TO THE POTENTIAL CLIENTS TO CONVINCE THEM TO ENTER INTO A CONTRACT WITH THE ASS ESSEE FOR SUPPLY OF THE PIPES ETC. AND OTHER ALLIED WORKS. IN ORDER TO PERFORM THE AFORESAID HIGHLY TECHNICAL ACTIVITY, THE ASSESSEE ENTERED INTO A CONTRACT WITH FOREIGN AGENTS. IN TERMS OF THE AGREE MENT, THE AGENT WAS TO DEVELOP, EXPAND AND PROMOTE THE SALES AND MARKETING FOR ASSE SSEE'S PRODUCTS, MAKE MARKET PLANS AND ESTABLISH A MARKETING NETWORK OF REPRESEN TATIVES TO HELP AND PROMOTE ASSESSEE'S PRODUCTS, TO PROVIDE INFORMATION SUCH AS MARKET DEVELOPMENT, ACTIVITIES OF COMPETITORS, INTENTIONS AND PLANS OF CLIENTS AND FI NANCIAL INFORMATION ON CLIENTS, TO PROVIDE ADVANCED INFORMATION ABOUT THE TENDERS, GAT HERING TECHNICAL SPECIFICATIONS OF PROJECT AND WORK INCIDENTAL THERETO, AND TO IDEN TIFY SUB-CONTRACTORS AND LOGISTIC SERVICE PROVIDER, SUCH AS SHIPPERS AND CARGO HANDLI NG AGENCIES, TO ENSURE THE SMOOTH EXECUTION OF CONTRACTS. DURING RELEVANT YEAR, THE ASSESSEE MADE PAYMENT OF EXPORT COMMISSION TO COMMISSION AGENTS WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSEE CLAIMED THAT THE EXPORT COMMISSION WAS NOT A SERVICE AND IF AT ALL T HEY ARE BEING CONSTRUED AS SERVICES, THE SAME WAS BEING RENDERED OUTSIDE INDIA AND WAS NOT TAXABLE IN INDIA UNDER SECTION 5(2). ACCORDINGLY, THE TAX WAS NOT RE QUIRED TO BE WITHHELD UNDER SECTION 195. THE ASSESSING OFFICER HELD THAT THE RESPONSIBILITIE S OF AGENTS SHOWED THAT AGENTS WERE REQUIRED TO RENDER TECHNICAL SERVICES, ALLOW THE US E OF INFORMATION CONTAINING INDUSTRIAL, COMMERCIAL AND TECHNICAL EXPERIENCE WHI CH WAS MADE AVAILABLE TO THE ASSESSEE, AND THAT THE CONSIDERATION RECEIVED FOR T HESE SERVICES WAS NOTHING BUT FEES FOR TECHNICAL SERVICES. THESE PAYMENTS ACCORDING TO THE ASSESSING OFFICER WERE TAXABLE UNDER SECTION 9(1)(VII). THEREFORE, THE ASS ESSEE WAS LIABLE FOR TAX DEDUCTION AT SOURCE FROM THESE PAYMENTS UNDER SECTION 195. ON APPEAL, THE COMMISSIONER(APPEALS) HELD THAT THE PAYMENTS COULD NOT BE HELD TO BE FTS AND THEY WERE IN THE NATURE OF COMMISSION EA RNED FROM SERVICES RENDERED OUTSIDE INDIA WHICH DID NOT HAVE TAX IMPLICATIONS I N INDIA. 6. THE TRIBUNAL MADE ELABORATE DISCUSSION ON ALL PO SSIBLE ANGLES IN THIS JUDGMENT, AND THEREAFTER CONCLUDED AS UNDER: - 5 - ITA NO.1396/AHD/2016 DCIT VS. M/S.PANCHMAHAL STEEL LTD. ASST.YEAR 2011-12 41. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS SO EXPRESSED BY THE COORDINATE BENCH. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARIN G IN MIND ENTIRETY OF THE CASE, WE UPHOLD WELL REASONING FINDINGS OF THE LEARNED CIT(A ) THAT THE COMMISSION PAYMENTS MADE TO THE NON-RESIDENT AGENTS DID NOT HAVE ANY TA XABILITY IN INDIA, EVEN UNDER THE PROVISIONS OF THE DOMESTIC LAW I.E. SECTION 9. ONCE WE COME TO THE CONCLUSION THAT THE INCOME EMBEDDED IN THESE PAYMENTS DID NOT HAVE ANY TAX IMPLICATIONS IN INDIA, NO FAULT CAN BE FOUND IN NOT DEDUCTING TAX AT SOURCE FROM TH ESE PAYMENTS OR, FOR THAT PURPOSE, EVEN NOT APPROACHING THE ASSESSING OFFICER FOR ORDE R UNDER SECTION 195. IN OUR CONSIDERED VIEW, THE ASSESSEE, FOR THE DETAILED REA SONS SET OUR ABOVE, DID NOT HAVE TAX WITHHOLDING LIABILITY FROM THESE PAYMENTS. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD. V. CIT [201 01 327 ITR 456/193 TAXMAN 234/7 TAX.MANN.COM 18, PAYER IS BOUND TO WITHHOLD TAX FRO M THE FOREIGN REMITTANCE ONLY IF THE SUM PAID IS ASSESSABLE TO TAX IN INDIA. THE ASSESSE E CANNOT, THEREFORE, BE FAULTED FOR NOT APPROACHING THE ASSESSING OFFICER UNDER SECTION 195 EITHER. AS REGARDS THE WITHDRAWAL OF THE CBDT CIRCULAR HOLDING THAT THE COMMISSION PA YMENTS TO NON-RESIDENT AGENTS ARE NOT TAXABLE IN INDIA, NOTHING REALLY TURNS ON THE C IRCULAR, AS DE HORS THE AFORESAID CIRCULAR, WE HAVE ADJUDICATED UPON THE TAXABILITY O F THE COMMISSION AGENT'S INCOME IN INDIA IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT AS ALSO THE RELEVANT TAX TREATY PROVISIONS. 7. THE FACTS IN BOTH THE CASE ARE IDENTICAL. BOTH THE ASSESSES WERE ENGAGED IN MANUFACTURING OF STEEL BILLETS, WIRE RODS, BRIGHT B ARS ETC. THEY HAVE BEEN EXPORTING THESE PRODUCTS TO FOREIGN COUNTRIES. THEY HAVE CERTAIN A GENTS WHO HAVE PROCURED ORDERS OUTSIDE INDIA AND THE ASSESSEES HAVE PAID COMMISSION ON SUCH ORDE RS. THEREFORE, RESPECTFULLY FOLLOWING ORDER OF THE ITAT IN THE CASE OF WELSPUN CORPORATION LTD. (SUPRA) AS WELL AS ORDERS IN THE ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT NO INTERFERENCE I S CALLED FOR IN THE ORDER OF THE LD.CIT(A). 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 7. IN VIEW OF THE DECISION PASSED BY THE CO-ORDINAT E BENCH ON THE IDENTICAL ISSUE IN ASSESSEES OWN CASE, RESPECTFULLY FOLLOWING THE SAM E, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS GROUND OF REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL STANDS DISMI SSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 09/10/2018 SD/- SD/- (AMARJIT SINGH) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 09/ 10 /2018 - 6 - ITA NO.1396/AHD/2016 DCIT VS. M/S.PANCHMAHAL STEEL LTD. ASST.YEAR 2011-12 .., . ../ T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-4, BARODA 5. !'# , $ , / DR, ITAT, AHMEDABAD 6. #() *+ / GUARD FILE. / BY ORDER, ! //TRUE COPY// / ( DY./ASSTT.REGISTRAR) !, / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 6.8.18 (DICTATION-PAD 9- PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 7.8.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.9.10.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9.10.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER