Chenitan Color Chem Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1480/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95827 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-06-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: R KUMAR

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. 1480/MDS/2015 / ASSESSMENT YEAR : 2010-11 CHENITAN COLOR CHEM PVT. LTD., C/O SRI T.N.SEETHARAMAN, ADVOCATE, # 384 (OLD NO.196), LLOYDS ROAD, CHENNAI-86. PAN AAGCS1440K APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(3), CHENNAI-34. RESPONDENT) / APPELLANT BY : SHRI R. KUMAR, ADVOCATE / RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT ! / DATE OF HEARING :.10.08.2015 '# ! / DATE OF PRONOUNCEMENT : 12.08.2015 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DA TED 25.3.2015. - - ITA 1480/15 2 2. THE GRIEVANCE IN THIS APPEAL IS WITH REGARD TO SUSTAINING THE ADDITION OF ` 87,80,923/- BEING COMMISSION PAID TO FOREIGN AGENTS INVOKING SEC.40(A)(I) FOR ALLEGED FA ILURE TO DEDUCT TAX AT SOURCE U/S.195 OF THE I.T. ACT, 1961. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CAR RIES ON BUSINESS AS A DEALER/EXPORTER OF LEATHER CHEMICA LS. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 12.10.2010 ADMITTING A TOTAL INCOME OF ` 43,91,890/-. PROCESSING U/S.143(1) WAS COMPLETED ON 5.3.2012. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S.143(2) DATED 25.8.2011 WAS ISSUED TO THE ASSESS EE ON 2.9.2011. AFTER HEARING THE ASSESSEE, THE ASSESSIN G OFFICER COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT DETE RMINING THE TOTAL INCOME OF ` 1,31,72,810/- AFTER MAKING DISALLOWANCE U/S.40(A)(I) OF THE ACT. AGGRIEVED, THE ASSESSEE W ENT IN APPEAL BEFORE THE CIT(APPEALS). ON APPEAL, THE CIT(APPEAL S) AGREED WITH THE FINDING GIVEN BY THE ASSESSING OFFICER AND HELD THAT THE ONUS IS ON THE ASSESSEE TO DISCHARGE WITH DOCUMENT AL EVIDENCE THAT THE AMOUNT PAID TO NON-RESIDENTS IS FALLING UN DER THE CATEGORY OF COMMISSION. AS THE ASSESSEE HAS FAILED TO - - ITA 1480/15 3 DISCHARGE ITS ONUS, THE CIT(APPEALS) DISMISSED THE GROUND TAKEN BY THE ASSESSEE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. T HE LD. AR SUBMITTED THAT THE INCOME ACCRUED OUTSIDE INDIA FOR THE SERVICES RENDERED FOR MARKETING AND T HE RECIPIENT OF THE COMMISSION HAS NO BUSINESS CONNECTION IN INDIA, WHAT IS PAID TO THE NON-RESIDENT IS NOT TAXABLE IN INDIA. HENCE, THERE IS NO QUESTION OF TDS FROM THAT PAYMENT. HE RELIED O N THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CI T V. FAIZAN SHOES P. LTD. (367 ITR 155), WHEREIN IT WAS HELD, DISMISSING THE APPEAL, THAT ON A READING OF SECTION 9(1)(VII), COM MISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT AGENTS WOULD NOT C OME UNDER THE TERM FEES FOR TECHNICAL SERVICES. FOR PROCUR ING ORDERS FOR LEATHER BUSINESS FROM OVERSEAS BUYERS. WHOLESALERS OR RETAILERS, AS THE CASE MAY BE, THE NON-RESIDENT AGENT WAS PAID 2.5 PER CENT COMMISSION ON FREE ON BOARD BASIS. THIS WAS A COMMISSION SIMPLICITER. WHAT WAS THE NATURE OF TEC HNICAL SERVICE THAT THE NON-RESIDENT AGENTS HAD PROVIDED ABROAD TO THE ASSESSEE WAS NOT CLEAR FROM THE ORDER OF THE ASSESS ING OFFICER. THE OPENING OF LETTERS OF CREDIT FOR THE PURPOSE OF COMPLETING THE - - ITA 1480/15 4 EXPORT OBLIGATION WAS AN INCIDENT OF EXPORT AND, TH EREFORE, THE NON-RESIDENT AGENT WAS UNDER AN OBLIGATION TO RENDE R SUCH SERVICES TO THE ASSESSEE, FOR WHICH COMMISSION WAS PAID. THE NON-RESIDENT AGENT DID NOT PROVIDE TECHNICAL SERVIC ES FOR THE PURPOSES OF RUNNING OF THE BUSINESS OF THE ASSESSEE IN INDIA. THEREFORE, THE COMMISSION PAID TO THE NON-RESIDENT AGENTS WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNIC AL SERVICES AND THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENT OF COMMISSION . 4.1. THE LD. AR, FURTHER SUBMITTED THAT THE SERVICES RENDERED BY THE NON-RESIDENT AGENT COULD AT BEST BE CALLED A S A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT F ALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES AND , THEREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQUENTLY, SEC TION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT TO BE DELETED. 4.2. ACCORDING TO THE LD. A.R., THE INCOME HAS BEEN ACC RUING OUTSIDE INDIA FOR THE SERVICES RENDERED FOR MARKETI NG ASSESSEES PRODUCTS IN ABROAD AND RECIPIENT HAS NO BUSINESS CO NNECTION IN - - ITA 1480/15 5 INDIA, WHAT IS PAID TO THE AGENT IS NOT TAXABLE IN INDIA, HENCE, THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE FROM THAT PAYMENT AND NO ASSESSMENT OF RECIPIENT HAS BEEN MAD E IN INDIA. FURTHER, HE SUBMITTED THAT ONLY WHEN THE INC OME OF THE AGENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT, THEN ONLY THE ASSESSEE IS LIABLE TO DEDUCT TDS AS PER SE C. 195C OF THE I.T. ACT. THE PERSON PAYING THE COMMISSION TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SERVICES ARE NO T CHARGEABLE TO TAX UNDER THE ACT. SEC. 195 CONTEMPLATES NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS; IT ALS O COVERS COMPOSITE PAYMENTS WHICH HAVE AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THE OBLIGATION TO DEDUCT TAX AT SOURCE, IS HOWEVER, LIMITED TO APPROPRIATE PROPO RTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON-RESIDENT. 4.3. THE LD. AR FURTHER SUBMITTED THAT INCOME THOUG H ACCRUED IN INDIA, THE SERVICES WERE RENDERED TO THE ASSESS EE ABROAD AND THE PAYMENTS WERE ALSO RECEIVED BY THEM ABROAD, THE REFORE, NO INCOME WOULD ARISE UNDER THE PROVISIONS OF SEC. 9(1 ) OF THE ACT. THE LD. AR, FURTHER SUBMITTED THAT THE FOLLOWING DE TAILS ARE - - ITA 1480/15 6 FURNISHED BEFORE THE LOWER AUTHORITIES TO SUGGEST T HAT THE PAYMENTS WERE MADE TO NON-RESIDENT TOWARDS SALES CO MMISSION: 1. TABULAR STATEMENT SHOWING DETAILS OF (FOREIGN AG ENCY) COMMISSION PAID WITH THE NAMES AND ADDRESSES OF THE PAYEES/SALES ORDER/COMMISSION PAID AGGREGATE COMM ISSION OF ` 87,80,923/- ON SALES ORDER OF THE VALUE OF ` 8,11,76,796/-. 2. LEDGER ACCOUNT COPY FOR COMMISSION EXPENSES F OREIGN FOR THE PERIOD 01-APR 2009 TO 31- MAR 2010. 3. FOREIGN OUTWARD REMITTANCE ADVICE ISSUED BY BAN K OF INDIA, PURASAWALKAM BRANCH 12 NOS. 4. LEDGER ACCOUNT OF GEE KAY TRADING FOR THE PERIO D 01-APR 2009 TO 31-MAR 2012. 5. OUTWARD PAYMENT CUSTOMER ADVICE ISSUED BY STAND ARD CHARTERED BANK FOR PAYMENT OF COMMISSION ( ` 15,84,507.20P) TO GEE KAY TRADING LLC, UAE. FURTHER, THE LD. AR SUBMITTED THAT THERE IS NO QUES TION OF DEDUCTION OF TDS ON THE ABOVE PAYMENTS MADE TO THE NON- RESIDENT AGENT. 5. ON THE OTHER HAND, T HE LD. DR SUBMITTED THAT THE SELLING AGENT IN THIS CASE THOUGH HAD RENDERED SERVICES ABR OAD, WAS ENTITLED TO RECEIVE THE COMMISSION FOR THE SERV ICES RENDERED TO THE ASSESSEE AND RECEIVED THE AMOUNT THROUGH O R FROM BUSINESS CONNECTION WHICH IT HAD IN INDIA AND SOURC E OF INCOME IS IN INDIA. BEING SO, THE INCOME SHALL BE DEEM ED TO ACCRUE OR - - ITA 1480/15 7 ARISE IN INDIA. SINCE THE SOURCE OF INCOME OF THE NON-RESIDENT, WHO IS THE AGENT OF THE ASSESSEE, IT EARNED COMMISS ION FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE ASSESSEE HAS NOT DEDUCTED TDS, IT SHOULD BE DISALLOWED U/S. 40(A)(I) OF THE I.T. ACT. THE SERVICES RENDERED BY THE AGENT FALLS WITH IN THE AMBIT OF EXPLANATION (2) OF SEC. 5 OF THE I.T. ACT. THE FAC T THAT THE AGENT HAS RENDERED SERVICES ABROAD IN THE FORM OF SOLICIT ING ORDERS AND THE COMMISSION IS TO BE REMITTED TO THEM ABROAD IS WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF THEIR INCOME. ACCORDING TO THE LD. DR, NON-DEDUCTION OF TDS TOWARDS THIS INCOME IS TO BE DISALLOWED. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. AT THE OUTSET, CERTAIN PROVISIONS OF THE ACT NEEDS TO BE LOOKED INTO SECTION 40(A)(I) WHICH READS AS UNDER:- 40 NOT WITHSTANDING ............. (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 19 38) ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE A. OUTSIDE INDIA - - ITA 1480/15 8 B. IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER VIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200: 7. THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE DI SALLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGEABLE UNDER THIS ACT AND IS PAYABLE OUTSIDE INDIA OR IN I NDIA TO A NON- RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPAN Y ON WHICH TAX IS DEDUCTIBLE AT SOURCE. THEREFORE, THE FIRST C ONDITION REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE U NDER THE ACT, THEREAFTER THE QUESTION OF DEDUCTION OF TAX WILL AR ISE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE D EDUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE CONDITION PRE CEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE U NDER THE PROVISIONS OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS NOT PRODUCED THE AGREEMENT ENTERED INT O BY THE ASSESSEE WITH FOREIGN AGENTS TO SHOW THAT THEY WERE APPOINTED TO ACT AS COMMISSION AGENTS OUTSIDE INDIA IN THEIR RESPECTIVE COUNTRIES. THE AO HAS DISALLOWED COMMISSION PAYMENT U/S - - ITA 1480/15 9 40(A)(I) OF THE ACT, SINCE, THERE WAS NO AGREEMENT TO SUGGEST THE PAYMENT OF SALES COMMISSION. 8. AS SEEN FROM THE ORDER S OF THE LOWER AUTHORITIE S, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDENT AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDENTS, WHO HAVE NO PER MANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECT ION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUE D OR AROSE IN INDIA THEN, IT IS EXEMPTED, IF THE ASSESSEE IS A BLE TO PROVE THAT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS A T ABROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDENT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN INDIA BY PRO DUCING RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN T HE PARTIES. WITHOUT EXAMINING THESE DETAILS, WE ARE N OT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE NO N-RESIDENT AGENT. THEREFORE, IT IS APPROPRIATE TO REMIT THE E NTIRE ISSUE BACK TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSE E TO PROVE THAT IT WAS SALES COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM - - ITA 1480/15 10 ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTE D BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND THE AO IS DIR ECTED TO MAKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT AND THE PAYMENTS MADE THEREO F. WITH THESE OBSERVATIONS, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 12 TH OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( $% &'( ) ) ( $ ( * + ) ,-.//.0.12345.65.7.48 ,-.345.699:.5 ;8 ' )< /JUDICIAL MEMBER ! )<=>>9?3@.3@A2BC25 $' /CHENNAI, D) /DATED, THE 12 TH AUGUST, 2015. MPO* )E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I8 /CIT(A) 4. I /CIT 5. GJ& K /DR 6. &LM /GF.