The ACIT, Circle-6, Ahmedabad V. M/s. Vinayak Exports, Ahmedabad

ITA 1397/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0310 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M G PATEL
• Keywords: Services rendered outside India; Advance ruling; TDS
• Section: 40(a)(ia); 195; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI T K SHARMA, JUDICIAL MEMBER AND SHRI N S SAINI, ACCOUNTANT MEMBER ITA NO.1397/AHD/2010 (ASSESSMENT YEAR:-2005-06) THE ASSISTANT COMMISSINER OF INCOME- TAX, CIRCLE-6, AHMEDABAD V/S M/S VINAYAK EXPORTS, CHAMUNDA ESTATE, PLOT NO. 7602, PHASE-IV, GIDC ESTATE, VATVA, AHMEDABAD PA NO. AABFC 2237 P [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI K M MAHESH, SR. DR RESPONDENT BY:- SHRI M G PATEL, AR O R D E R PER T K SHARMA (JM): THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 26-12-2010 OF THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS)-XVI, AHMEDABAD [THE CIT(A)] FOR ASSESSMENT YEAR (AY) 2005-06. THE ONLY EFFECTIVE GR OUND RAISED BY THE REVENUE READS AS UNDER:- THE LD. COMMISSIONER OF INCOME-TAX (A)-XVI, AHMEDA BAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.28,65,364/- MADE U/S 40(A)(IA) ON ACCOUNT OF COMMISSION EXPENSE S. 2 BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE I S IN THE BUSINESS OF TRADING & EXPORT OF PHARMACEUTICAL MACH INERIES. FOR THE PURPOSE OF ITS EXPORT, THE ASSESSEE MADE COMMIS SION PAYMENT ITA NO.1397/AHD/2010 FOR AY 2005-06 M/S VINAYAK EXPORTS 2 TO NON-RESIDENTS. THE AO OBSERVED THAT NO TDS HAS B EEN DEDUCTED BY THE ASSESSEE ON SUCH COMMISSION PAYMENT OF RS.25,51,861/- PAID TO SUCH NON-RESIDENTS. HE, THER EFORE, DISALLOWED THE SAME U/S 40(A)(IA) AND MADE AN ADDIT ION THEREOF IN THE TOTAL INCOME. 3 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) HAS DE ALT WITH THE ISSUE IN DETAIL AND DELETED THE ADDITION BY OBSERVI NG AS UNDER:- 4. SHRI N A JAYPEE, CA FROM MANUBHAI G PATEL & CO. ATTENDED AND FILED WRITTEN SUBMISSIONS ON 24-2-2010 . HIS BASIC ARGUMENT IS THAT NON RESIDENTS TO WHOM THE COMMISSI ON HAS BEEN PAID DO NOT HAVE ANY OFFICE OR ESTABLISHMENT IN INDIA. T HE COMMISSION PAID TO THEM IS NOT ASSESSABLE IN INDIA IN THEIR HANDS. ONCE THE INCOME IS NOT TAXABLE IN INDIA, PROVISIONS OF SECTION 195 WIL L .NOT BE APPLICABLE,.- ,, IN OTHER WORDS, THE APPELLANT IS NOT LIABLE TO D EDUCT LAX ON THE COMMISSION PAYMENT MADE TO NON RESIDENTS WHO DOES N OT HAVE ANY OFFICE OR ESTABLISHMENT IN INDIA. IN SUPPORT OF HIS CONTENTION HE PRODUCED A COPY OF JUDGEMENT OF ADVANCE RULING IN I NRE (2004) 267 ITR 725 IN THE CASE OF TELESOFT PVT LTD AND ALSO RE LIED UPON THE CIRCULAR NO 786 DATED 7-2-2000 OF CBDT ON THIS POIN T. FOR THE SAKE OF CONVENIENCE THE HEAD NOTE OF THE JUDGEMENT AND T HE CIRCULAR IS REPRODUCED AS UNDER:- FROM THE JUDGEMENT: 'THE APPELLANT IS A PRIVATE COMPANY, RESIDENT IN IN DIA, ENTITLED INTO AGREEMENTS WITH THREE NON RESIDENT COMPANIES FOR SE CURING BUSINESS FROM OUTSIDE INDIA, AGREEING TO PAT TWO OF THEM RET AINER FEES AND COMMISSION AND ONLY COMMISSION TO THE THIRD COMPANY . NONE OF THE THREE FOREIGN COMPANIES HAD ANY OFFICE OR ANY BUSIN ESS OPERATION IN INDIA. THE INDIAN COMPANY EARNED FOREIGN EXCHANGE B Y EXPORT OF DEVELOPED SOFTWARE. AFTER RECEIPT OF FOREIGN EXCHAN GE IN INDIA, THE NON RESIDENT COMPANIES WERE PAID THEIR COMMISSION O R FEES. ON THE ITA NO.1397/AHD/2010 FOR AY 2005-06 M/S VINAYAK EXPORTS 3 INDIAN COMPANY APPLYING FOR AN ADVANCE RULING, THE AUTHORITY RULES ON THE FACTS STATED, THAT NO FAX WAS DEDUCTIBLE AT SOURCE U/S. 195 OF IT ACT, 1961 FROM THE COMMISSION ON EXPORT EARNINGS AN D RETAINER FEES PAYABLE TO THE THREE NON RESIDENT COMPANIES.' FROM THE CIRCULAR NO. 786 DATED 7-2-2000 OF CBDT: 1314. CLARIFICAFION REGARDING TAXABILITY OF EXPORT COMMISSION PAYABLE TO NONRESIDENT AGDINSF RENDERING SERVICES A BROAD IN THEIR AUDIT REPORT FOR 1997-98 (DP NO 79(IT) THE COMPTROLLER & AUDITOR GENERA! (C & AG) RAISED AN OB JECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY A/LOWED A DEDUCTION IN RESPECT OF A PAYMENT TO A NON- RESIDENT WHERE FAX HAD NOT BEEN DEDUCTED AT SOURCE. THE NATURE OF THE PAYMENT IN THIS CASE WAS EXPORT COMMISSION A ND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA. IN THE VIEW OF C & AG, THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SEC. 40(A)(IA) OF THE I T. A CT, 1961. IF HAS COME TO THE NOTICE OF THE BOARD THAT A SIMILAR VIEW , ON THE SAME SET OF FACTS HAS BEEN 'TAKEN BY SOME ASSESSING OFFI CER'S IN OTHER CHARGES. 2. THE DEDUCTION OF FAX AT SOURCE UNDER SECTION 195 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESID ENT AGENT IS CHARGEABLE TO FAX IN INDIA. IN THIS REGARD ATTENTIO N TO CBDT CIRCULAR NO. 23 DATED 23RD JULY, 196 IS DRAWN WHERE THE TAXABILITY OF FOREIGN AGENTS OF INDIAN EXPORTERS' W AS CONSIDERED ALONGWITH CERTAIN OTHER SPECIFIC SITUATI ONS. IF HAD BEEN CLARIFIED THAT WHERE THE NON RESIDENT AGENT OP ERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME1 ARISES IN INDIA . FURTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABRO AD IF CANNOT HE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF TH E AGENT IN INDIA. SUCH PAYMENTS WERE THERE FORE HELD TO BE NOT TAXABLE IN INDIA., THE RELEVANT SECTIONS, NAMELY SECTION 5(2J AND SECTION 9 OF THE INCOME-FAX ACT, NOT HAVING, UNDERGONE ANY CH ANGE IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO 23 STILL P REVAILS. NO FAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSE QUENTLY, THE ITA NO.1397/AHD/2010 FOR AY 2005-06 M/S VINAYAK EXPORTS 4 EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUT SIDE INDIA BECOMES ALLOWABLE EXPENDITURE. ON BEING APPRISED OF THIS POSITION, THE C & AG HAVE AGREED TO DROP THE OBJECT ION REFERRED TO ABOVE.' 5 FROM THE ABOVE, IT IS CLEAR THAT IN PAST C & AG H AS RAISED OBJECTIONS FOR NOT DEDUCTING TAXES AT SOURCE IN RES PECT OF COMMISSION PAYMENT TO NON RESIDENTS ON EXPORT. BY VIRTUE OF AB OVE EXPLANATION, GIVEN BY THE DEPARTMENT TO THE C & AG, THE C & AG H AS AGREED TO DROP THE OBJECTION ON THE ABOVE POINT. I AM THEREFO RE IN AGREEMENT WITH THE AUTHORIZED REPRESENTATIVE THAT IF THE INCO ME IS NOT ASSESSABLE IN THE HANDS OF THE RECIPIENT, THEN THE PROVISIONS OF SECTION 195 WOULD NOT BE APPLICABLE AND HENCE NO DISALLOWANCE U/S. 40 (A)(IA) CAN BE MADE. FOLLOWING THE CIRCULAR OF THE CBDT, I DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.25,51,861/ -. 4 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS COME IN APPEAL BEFORE US. THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE A SSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A). 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE A LSO GONE THROUGH THE ORDERS OF THE AO AND THE CIT(A). WE FIN D THAT THE LEARNED CIT(A) HAS FOLLOWED CBDT CIRCULAR NO.23, DA TED 23-07- 1996, WHEREIN IT HAS BEEN CLARIFIED THAT WHERE THE NON RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER SINCE, THE PAYMENT IS USUALLY REM ITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY O R ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS WERE THEREFORE HE LD TO BE NOT TAXABLE IN INDIA. FURTHER, CBDT, VIDE CIRCULAR NO. 786 DATED 07- ITA NO.1397/AHD/2010 FOR AY 2005-06 M/S VINAYAK EXPORTS 5 02-2000 HAS ALSO DIRECTED THAT NO TAX IS REQUIRED T O BE DEDUCTED IN RESPECT OF PAYMENT OF COMMISSION TO NON-RESIDENT S. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY ILLEGALITY O R INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION. W E, THEREFORE, UPHOLD THE ORDER OF THE CIT(A). 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 13-08-2010 SD/- SD/- (N S SAINI) ACCOUNTANT MEMBER (T K SHARMA) JUDICIAL MEMBER DATE : 13-08-2010 COPY OF THE ORDER FORWARDED TO: 1. M/S VINAYAK EXPORTS, CHAMUNDA ESTATE, PLOT NO. 7 602, PHASE-IV, GIDC ESTATE, VATVA, AHMEDABAD 2. THE ACIT, CIRCLE-6, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD