DCIT, CHENNAI V. C.P.Aquaculture (India) Pvt. Ltd., CHENNAI

ITA 1433/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81115 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , # $% $& BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI V. DURGA RAO, JUDICIAL MEMBER $ ./ ITA NO.1433/MDS/2014 # ' '' / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI - 600 034. V. M/S C.P. AQUACULTURE (INDIA) PVT. LTD., 47/D4, GANDHI MANDAPAM ROAD, KOTTURPURAM, CHENNAI - 600 085. PAN : AAACC 1316 Q ()*/ APPELLANT) (,-)*/ RESPONDENT) )* . $ / APPELLANT BY : SMT. V.S. SREELEKHA, CIT-DR SHRI GURU BHASHYAM, JCIT ,-)* . $ / RESPONDENT BY : SMT. PUSHYA SITARAMAN, SR. ADVOCATE SMT. J. SREE VIDYA, ADVOCATE $ . /0 / DATE OF HEARING : 31 ST JULY, 2014 12' . /0 / DATE OF PRONOUNCEMENT: 18 TH AUGUST, 2014 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , CHENNAI, DATED 22.01.2014 RELEVANT TO THE ASSESSMENT YEAR 20 10-11. 2 I.T.A. NO. 1433/MDS/14 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS IN THE B USINESS OF MANUFACTURING AND SALE OF SHRIMP, PRAWN, FISH FEED AND POULTRY FEED. IN THE RETURN OF INCOME FILED BY IT, THE ASSESSEE H AS CLAIMED THE AMOUNT OF ` 1,44,87,967/- PAID TOWARDS SALES COMMISSION TO FORE IGN AGENTS, TO BE ALLOWED UNDER SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961. WHEN THE A.O. HAD ENQUIRED THE ASSESSEE IN T HIS CONNECTION, THE ASSESSEE HAS EXPLAINED AS UNDER:- KMN AQUA AND PRO AQUA ARE TWO MAIN DEALERS TO OUR AUTHORIZED SALES AGENTS TOWARDS MARKETING AND SALES PROMOTION. WE FURNISH BELOW THE BRIEF DETAILS OF A CTIVITIES RENDERED BY THEM. THE MAIN PURPOSE OF REMITTING CO MMISSION IS TO DEVELOP THE SALES DEMAND ON OUR BEHALF BY THE M IN THEIR COUNTRIES. M/S KMN AQUA AND PRO AQUA DOING EFFECTIVE VARIOUS ACTIVITIES IN THE FIELD OF MARKETING. MARKETING IS THE PROCESS OF COMMUNICATING OUR PRODUCT VALUE OF PRAWN FEED PRO DUCT TO OUR CUSTOMERS. IT HAS BEEN LOOKED AT AS ON ORGANIZATIO NAL FUNCTION AND A SET OF PROCESSES FOR CREATING DELIVERING AND COMMUNICATING VALUE TO CUSTOMERS, AND MANAGING CUST OMER RELATIONSHIPS IN WAYS THAT BENEFIT THE ORGANIZATION AND OUR SHAREHOLDERS. MARKETING MANAGEMENT IS THE ART OF C HOOSING TARGET MARKETS, AS WELL AS ACQUIRING AND KEEPING CU STOMERS THROUGH PROVIDING SUPERIOR CUSTOMER VALUE. IN ORDER TO DEVELOP THE PRODUCTION CONCEPT OF OUR PRODUCTS, THE PRODUCT CONCEPT, THE SELLING CONCEPT, THE MARKETING CONCEPT AND THE HOLISTIC MARKETING CONCEP T. THE FOUR COMPONENTS OF HOLISTIC MARKETING ARE RELATIONSHIP M ARKETING, INTERNAL MARKETING, INTEGRATED MARKETING, AND SOCIA LLY RESPONSIVE MARKETING. THE SET OF ENGAGEMENTS NECES SARY FOR SUCCESSFUL MARKETING MANAGEMENT INCLUDES, CAPTURING MARKETING INSIGHTS, CONNECTING WITH CUSTOMERS, BUIL DING STRONG BRANDS, SHAPING THE MARKET OFFERINGS, DELIVERING AN D COMMUNICATING VALUE, CREATING LONG TERM GROWTH, AND DEVELOPING MARKETING STRATEGIES AND PLANT. WE MADE SALE OF EXPORT FOR THE YEAR ` 22,80,50,159/-. 3 I.T.A. NO. 1433/MDS/14 SALES PROMOTION : THE SALES COMMISSION WAS PAID FOR SALES PROMOTION A CTIVITIES CONSISTS VARIOUS HEADS. SALES DEVELOPMENT OR PROMO TION IS ONE OF THE SEVEN ASPECTS OF THE PROMOTIONAL MIX. ADVERTISING : THE DEALERS MAKE ADVERTISEMENT IN THE FORM OF PRESENTATION AND PROMOTION OF IDEAS, AND DEVELOP AN D PROMOTE THE DEMAND FOR OUR GOODS. EXAMPLES, OUR AGENTS WIL L MAKE BROCHURES AND CATALOGS, SIGNS, IN-STORE DISPLAYS, P OSTERS AND ALL EXPENSES WERE BORNE BY THE DEALERS RESPECTIVE COUN TRIES. PERSONAL SELLING : THE DEALERS WILL DO PERSONAL SELLING OF OUR PRAWN FEED PRODUCTS IN VARIOUS BRANDS. A PR OCESS OF HELPING AND PERSUADING ONE OR MORE PROSPECTS TO PUR CHASE A GOOD OR TO ACT ON ANY IDEA THROUGH THE USE OF AN OR AL PRESENTATION. EX. SALES PRESENTATIONS, SALES MEETI NGS, SALES TRAINING AND INCENTIVE PROGRAMMES FOR INTERMEDIARY SALES PEOPLE, SAMPLES AND CAN BE FACE TO FACE OR VIA TELE PHONE. SALES PROMOTION : OUR AGENTS WILL MAKE SALES PROMOTIONS IN PROMINENT DEMAND AREAS VIA MEDIA AND NON MEDIA MARKETING COMMUNICATION ARE EMPLOYED FOR A PR E- DETERMINED, LIMITED TIME TO INCREASE CONSUMER DEMAN D, STIMULATE MARKET DEMAND OR IMPROVE PRODUCT AVAILABI LITY. EX. PRODUCT SAMPLES, REBATES, TIE-INS, TRADE SHOWS, TRA DE-INS, AND AQUA FAIR / EXHIBITIONS. PUBLIC RELATIONS : IN ORDER TO GIVE GOOD SERVICE TO THEIR CUSTOMERS FOR USING THE FEEDS, THEY WILL BE SETTING UP LABORATORIES AND WILL BE DOING WATER TESTING AND OT HER TESTS REQUIRED FOR AQUACULTURE AND WILL BE GIVING RESULT OF THESE TESTS FREE OF COST TO THEIR CUSTOMERS. OUR AGENTS WILL P AID INTIMATE STIMULATION OF SUPPLY FOR A PRODUCT, SERVICE OR BUS INESS UNIT BY PLANTING SIGNIFICANT NEWS ABOUT OUR VARIOUS BRANDS OR A FAVOURABLE PRESENTATION. DIRECT MARKETING : ON ARRIVAL OF FEEDS IN SRILANKA, OUR DISTRIBUTOR WILL BE DISTRIBUTING THE FEEDS DIRECT T O THE FARMERS WHO ARE DOING AQUACULTURE OR WILL BE SUPPLYING FEEDS TH ROUGH THEIR APPOINTED SUB DEALERS. THE DISTRIBUTOR WILL BE SUP PLYING THE FEEDS TO THEIR FARMERS OR TO THEIR SUB DEALERS ON C ASH OR CREDIT BASIS. THEY WILL APPOINT TECHNICAL STAFFS AND THES E STAFFS WILL BE AVAILABLE TO ADVISE ANY TECHNICAL PROBLEMS ARISING IN THE AQUACULTURE PONDS. THESE STAFFS WILL BE PROVIDED W ITH TWO WHEELER AND FOUR WHEELER VEHICLES AND WILL BE AVAIL ABLE TO SORT OUT THE CUSTOMER PROBLEMS DURING THE CULTURE PERIOD . ALSO, THE DISTRIBUTOR WILL BE ARRANGING SEMINARS ON A QUARTER LY OR HALF YEARLY BASIS TO APPRAISE THE RECENT TRENDS IN THE A QUACULTURE FIELD AND TO UPGRADE THE KNOWLEDGE OF THE FARMERS. 4 I.T.A. NO. 1433/MDS/14 DEMONSTRATION FARMS WILL BE TAKEN UP BY OUR DISTRIB UTORS AND THEY WILL BE SHOWING THE USAGE OF LATEST TECHNIQUE AND PRODUCTS TO THE AQUACULTURE FARMERS. TO STAND WITH THE INTERNATIONAL COMPETITION IN TH E AQUATIC FEED MARKETS IN THE SOUTH ASIATIC REGION NAMELY, MA LAYSIA, INDONESIA, TAIWAN, CHINA, OUR DEALERS WERE MADE SOU ND BUSINESS EFFORTS AND ACHIEVED THE DESIRED TARGETS T O RETAIN THE SOUTH ASIA MARKETS AND CUSTOMER RELATIONS WE HAD PA ID COMMISSION IN FOREIGN CURRENCY TO THEM. 3. HOWEVER, THE A.O. HAS NOT ACCEPTED THE CONTENTIO N OF THE ASSESSEE THAT THE AMOUNT WAS PAID TOWARDS SALES COM MISSION. SHE HELD THAT IT IS NOT A SALES COMMISSION AND IT I S PERTAINING TO MANAGERIAL AND TECHNICAL. THE A.O. BY INVOKING SEC TION 40(A)(I) OF THE INCOME-TAX ACT, 1961, DISALLOWED THE ENTIRE PAY MENT MADE TO FOREIGN AGENTS. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(APPEALS). THE CIT(APPEALS), AFTER CONSIDER ING ALL THE DETAILS AND ALSO AGREEMENTS, HAS HELD AS UNDER:- 4.2 . 5 TO EXAMINE WHETHER THE AMOUNTS PAID AS COMMIS SION ARE REALLY COMM I SSIONS OR MANAGERIAL SERVICES DEFINED UNDER ' FEE FOR TECHNICAL SERVICES ' , THE DETAILS HAVE BEEN EXAMINED BY ME DURING THE COURSE OF APPELLATE PROCEEDINGS . AGREEMENTS ENTERED INTO WITH THE PARTIES , INVOICES AND THE DEBIT NOTES FILED BEFORE ME WERE EXAMINE W ITH REGARD TO AGREEMENTS , I T WAS CLEARLY MENTIONED IN THE AGREEMENT THAT ' THE COMPANY WILL PAY DEALERSH I P COMM I SSION @ USD 90 PER M . TON ON FEED INVOICE RAISED IN THEIR NAME AND ALSO IN THE NAMES OF THEIR SUB-DEALERS .. ' . TH I S SHOWS THAT THE AMOUN T I S PAID AS A COMMISS I ON AT A CERTAIN RATE WORKED OUT ON THE EXPORT OF THE I TEM ON THE BASIS OF M . TONS . IT IS EVIDENT FROM THE ABOVE THAT IT IS NOT A MANAGERIAL SERV I CE WHEREIN THE COMMISSION WILL BE PAID AT A CERTAIN RATE. THE DEBIT NOTES WERE RAISED ON THE QU ANTITY OF EXPORT BASED ON INVOICES. THE DEBIT NOTES CLEARLY S HOW THAT THE 5 I.T.A. NO. 1433/MDS/14 AMOUNTS WERE PAID TOWARDS AGENCY COMMISSION . THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENTS IN THE CONTR ACTING STATES AS, SUBMITTED BEFORE THE AD BY THE APPELLANT , SHOWS THAT THE SERVICES WERE RENDERED ABROAD TO I NCREASE THE SALES OF THOSE COMPANIES IN THEIR COUNTRIES . BY PAYMENT OF THE AMOUNTS TO THE NON-RESIDENTS THE APPELLANT HAS NOT GOT ANY BENEFIT IN THE FORM OF MANAGERIAL SKILLS OR TECHNICAL KNOW-HOW USE FUL IN INDIA TO THE APPELLANT . THEREFORE , THOSE SERVICES RENDERED OUTSIDE THE COUNTRY ARE NOT MADE AVAILABLE IN THE FORM OF ANY T ECHNICAL KNOWLEDGE TO THE APPELLANT IN INDIA . IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT THE AMOUNTS PA I D WILL NOT FIT INTO ANY TECHNICAL FEE DEFINED U/S . 9(1)(VI I ) OF THE ACT . 4.2 . 6 WITH REGARD TO THE ARGUMENT THAT WHETHER APPROACH ING THE ITO (TDS) FOR A CERTIFICATE U/S.195(2) IS NECESSARY, THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY P . LTD HAS MADE I T VERY CLEAR THAT I T IS REQUIRED ONLY WHEN THE APPELLANT I S NOT CLEAR AS TO WHO MUCH TOS NEEDS TO BE MADE . IF THE APPE L LAN T REASONABLY BELIEVES THAT TDS NEED NOT BE DEDUCTED ON THE AMOUNTS PA I D TO NO N RESIDENT , THEN HE NEED NOT APPROACH THE ITO (TDS) FOR A CERTIFICATE . T HI S V I EW I S SUPPORTED BY THE ITAT , CHENNA I, SPECIAL BENCH IN THE CASE OF ITO V PRASAD PRODUCTIONS LTD (125 ITO 263) WHEREIN IT WAS STATED THAT THERE IS NO NEED TO GET N I L DEDUCTIO N CERTIFICATE FROM TDS ITO U/S 195(2) WHERE THE NON-RES I DENT IS NOT LIABLE TO TAX . 4.2 . 7 CONSIDERING THE FACTUAL AND LEGAL POSITION AND JU DICIAL PRECEDENTS DISCUSSED ABOVE, I AGREE WITH THE CONTEN TION OF THE ID.AR OF THE APPELLANT THAT THE COMMISSION EARNED B Y NON- RESIDENT AGENTS FOR SERVICES RENDERED OUTSIDE INDIA CANNOT BE DEEMED TO BE INCOME ACCRUED OR ARISEN IN INDIA AND I S THEREFORE NOT LIABLE FOR TDS AS PER PROV I SIONS OF SEC 40(A)(I) OF THE ACT . THE DECISION RENDERED BY KARNATAKA HIGH COURT I N THE CASE OF CIT V . SAMSUNG ELECTRONICS P . LTD AND THE DECISION OF THE SUPREME COURT IN THE CASE OF TRANSM I SSION CORPORATION OF INDIA LTD (239 ITR 587) WERE DISTINGUISHED BY THE H ON ' BLE SUPREME COURT IN ITS OWN ORDER IN THE CASE OF GE IN DIA TECHNOLOGIES (SUPRA) ITSELF . IN VIEW OF THE ABOVE DISCUSSION , THE AO IS DIRECTED TO DELETE THE ADDITION MADE ON THIS COUNT . THE GROUND IS ALLOWED . 5. ON BEING AGGRIEVED, THE REVENUE HAS TAKEN THE IS SUE IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR TH E ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE 6 I.T.A. NO. 1433/MDS/14 DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN I .T.A. NO. 2095/MDS/2012 IN THE CASE OF ITO V. M/S FAIZAN SHOE S PVT. LTD. VIDE ITS ORDER DATED 23 RD APRIL, 2013, THE TRIBUNAL HELD AS FOLLOWS:- 6. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT THE NON-RESIDENT S ARE ONLY PROCURING ORDERS FOR THE ASSESSEE AND FOLLOWIN G UP PAYMENTS, NO OTHER SERVICES ARE RENDERED OTHER THA N PROCURING THE ORDERS AND COLLECTING THE AMOUNTS. T HE NON- RESIDENTS ARE NOT PROVIDING ANY TECHNICAL SERVICES TO THE ASSESSEE. THE COMMISSION PAYMENT MADE TO NON-RESIDE NTS ALSO DOES NOT FALL UNDER THE CATEGORY OF ROYALTY OR FEE OF TECHNICAL SERVICES, THEREFORE THE EXPLANATION TO SU B-SECTION (2) OF SECTION 9 HAS NO APPLICATION TO THE FACTS OF THE ASSESSEES CASE. WE SEE THAT THIS CASE IS SQUARELY COVERED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CEN. P.LTD. VS. CIT (327 ITR 456) WHERE IN THE HONBLE SUPREME COURT HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS WHEN NON-RESIDENTS PROVIDED SERVICE OUTS IDE INDIA . IT WAS HELD THAT WHEN THE SERVICES ARE PROV IDED OUTSIDE INDIA, THE COMMISSION PAYMENTS MADE TO NON- RESIDENTS CANNOT BE TREATED AS INCOME DEEMED TO ACC RUE OR ARISE IN INDIA, THEREFORE, THE PROVISIONS OF SECTIO N 195 HAS NO APPLICATION. IN ORDER TO INVOKE THE PROVISIONS OF S ECTION 195 OF THE ACT, THE INCOME SHOULD BE CHARGEABLE TO TAX IN INDIA. HERE THE COMMISSION PAYMENTS TO NON-RESIDENTS ARE N OT CHARGEABLE TO TAX IN INDIA AND THEREFORE THE PROVIS IONS OF SECTION 195 ARE NOT APPLICABLE. IN THE CIRCUMSTANCE S, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE DISALLOWANCE MADE UNDER 40(A)(I) OF THE ACT. 6. ON THE OTHER HAND, THE LD. D.R. HAS RELIED ON TH E ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH SIDES AND PERUSED THE RECORDS AND ORDERS OF THE AUTHORITIES BELOW. IN THIS APPEAL, W E FIND THAT THE LD. CIT(APPEALS), AFTER CONSIDERING THE ENTIRE DETAILS AND ALSO 7 I.T.A. NO. 1433/MDS/14 AGREEMENTS ENTERED BY THE ASSESSEE WITH FOREIGN PAR TIES, HAS GIVEN A SPECIFIC FINDING THAT THE PAYMENT MADE BY THE ASS ESSEE TOWARDS SALES COMMISSION IS NOT LIABLE FOR TDS AS PER PROVI SIONS OF SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961. THE DEPARTME NT HAS NOT GOT ANY MATERIAL TO CONTRADICT THE SPECIFIC FINDING GIV EN BY THE LD. CIT(APPEALS). 8. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF T HE CASE AND FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THI S TRIBUNAL IN I.T.A. NO. 2095/MDS/2012 (SUPRA), WE UPHOLD THE ORDER OF T HE LD. CIT(APPEALS). 9. IN THE RESULT, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 18 TH OF AUGUST, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( . !' ) (DR. O.K.NARAYANAN) (V. DURGA RAO) /VICE-PRESIDENT # $% /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 18 TH AUGUST, 2014. KRI. 8 I.T.A. NO. 1433/MDS/14 5 . ,#/67 87'/ /COPY TO: 1. )* /APPELLANT 2. ,-)* /RESPONDENT 3. 9/ () /CIT(A)-I, CHENNAI 4. 9/ /CIT, CHENNAI-I, CHENNAI 5. 7:! ,#/# /DR 6. !' ; /GF.