INCOME TAX OFFICER- 17(2)(2), MUMBAI V. KHIMJI VISARAM & SONS, MUMBAI

ITA 1556/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3469 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KISHORE DALAL
• Keywords: TDS
• Section: 143(3); 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER AND ITA NO.1556/MUM/2018 ASSESSMENT YEAR-2013-14 ITO - 17(2)(2), 1 ST FLOOR, R. NO.123B, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400020 / VS. M/S KHIMJI VISHRAM & SONS, 21, MITTAL CHAMBER, 228, NARIMAN POINT, MUMBAI-400021 PAN NO. AAAFK4773G ( / REVENUE) ( / ASSESSEE) / REVENUE BY SHRI MANOJ KUMAR SINGH / ASSESSEE BY SHRI KISHORE DALAL / DATE OF HEARING : 24/04/2019 / DATE OF ORDER: 30/04/2019 / O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDE R'S OF LEARNED CIT(A)-57, MUMBAI, DATED 19/12/2017 AND PER TAIN TO ASSESSMENT YEAR 2013-14. THE GROUNDS OF APPEAL READ AS UNDER:- 1) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PAYMENT MA DE BY THE ASSESSEE TO THE NON RESIDENT IS IN THE NATURE OF COMMISSION WITHOUT APPRECIATING THE FACT THAT THE PAYMENT MADE BY THE ASSESSEE WAS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS PER EXPLANATION 2 TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 9 OF THE ACT.' ITA NO.1556/MUM/2018, M/S KHIMJI VISARAM & SONS 2 2) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. C 11(A) WAS JUSTIFIED IN HOLDING THAT THE INCOME OF THE PAYEE MADE BY THE ASSESSEE IS NOT TAXABLE IN INDIA WITHOUT APPREC IATING THAT SUCH PAYMENT IS LIABLE TO TAX UNDER THE PROVISION OF SEC TION 9 OF THE ACT.'. 3) 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. C 11(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE U/S 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THAT THE ASSESSEE HAD NOT DEDUDCTED TAX AT SOURCE FROM THE PAYMENT MADE BY THE ASSESSEE TO NON RESIDENTS WHICH IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES UND ER EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 AND IS LIABLE TO TAX DEDUCTION AT SOURCE UNDER SECTION 195.' 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER :- THE APPELLANT IS A PARTNERSHIP FIRM ENGAGED IN THE BUS INESS OF TRADING IN COTTON, TEXTILES, YARN, COMMISSION AGENT, EXP ORTS AND IMPORTS. THE ASSESSEE HAS FILED THE RETURN OF INCO ME ON 30/09/2013 DECLARING TOTAL INCOME AT RS.NIL. THE AO U /S 143(3) OF THE I.T. ACT, 1961 ORDER DATED 07/03/2016 ADDED BACK AN AMOUNT OF RS.1,13,69,151/ TO THE TOTAL INCOME OF THE ASSESSEE FIRM AS BROKERAGE AND COMMISSION. THE LEAR NED ASSESSING OFFICER DISALLOWED COMMISSION ON EXPORT PA ID TO FOREIGN AGENTS OF RS.1,13,69,151/- UNDER SECTION 40(A )(IA) OF THE INCOME TAX ACT, 1961. 3. AGAINST ABOVE ORDER ASSESSEE APPEALED BEFORE THE LEARNED CIT(A). IT WAS INTER-ALIA SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF ITAT IN ASSESSEE SOWN CASE. LEARNED CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- ITA NO.1556/MUM/2018, M/S KHIMJI VISARAM & SONS 3 I HAVE CAREFULLY CONSIDERED THE MATTER AND PERUSED THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AS WELL AS THE ORDER O F THE HONBIE BOMBAY HIGH COURT IN THE CASE OF DIT(FF) VS. CREDIT LYONNAIS. T HE ONLY GROUND OF APPEAL IS AGAINST THE DISALLOWANCE OF FOREIGN COMMISSION PAID OF RS.1,13,69,15 1/-. 6.1 THE CONTROVERSY HAS ARISEN BECAUSE THE AO HAS C LASSIFIED THE COMMISSION PAID TO FOREIGN RESIDENTS AS FEES FOR MANAGERIAL AN D TECHNICAL SERVICES AND THEREBY INVOKED SEC 9. ON FACTS, I FIND THAT THE PA YMENTS MADE TO FOREIGN RESIDENTS ARE PLAIN COMMISSION AND BROKERAGE AND NO T FEES FOR MANAGERIAL AND TECHNICAL SERVICES. THE APPELLANT IS ABLE TO L INK THE COMMISSION PAID TO VARIOUS FOREIGN RESIDENTS TO THE SALES AFFECTED THR OUGH THEM. THE DETAILS ARE FILED III PAGES 1 TO 27 OF THE PAPER BOOK BEFORE ME . THEREIN THE APPELLANT HAS FILED DETAILS OF THE COMMISSION PAID PARTY WISE AND THE FOREIGN CUSTOMER OF THE APPELLANT. I FIND THAT THE COMMISSION IS BEING PAID @ 0.25% TO 1% OF EACH INVOICE VALUE. HENCE THE COMMISSION IS BASED ON EAC H INVOICE AND NOT LUMP SUM OR ANY OTHER BASIS. ON THIS ISSUE THEN, I FIND THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF D1T (IT) V S. CREDIT LYONNAIS- TS143-HC-2016 (BORN) IS REVEALING AND COVERS THE MA TTER SQUARELY IN FAVOR OF THE APPELLANT. IN THAT CASE, THE ISSUE WAS IDENTICA L ON FACTS. IT WAS HELD THAT SECTION 195 OBLIGES A PERSON RESPO NSIBLE FOR PAYING TO NON- RESIDENT ANY SUM CHARGEABLE TO TAX UNDER THE ACT, T O DEDUCT TAX AT THE TIME OF PAYMENT OR AT THE TIME OF CREDIT TO SUCH NON-RESIDE NT. IN TERMS OF SECTION 5, A NON-RESIDENT IS CHARGEABLE TO TAX RECEIVED OR DEEME D TO BE RECEIVED IN INDIA OR ACCRUED OR ARISING IN INDIA. 6.2 THE FACTS AND ISSUE IN THE PRESENT APPEAL IS ID ENTICAL TO THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT. RESPECTFULLY FOLLOWI NG THE DECISION OF THE HON'BLE BOMBAY HIGH COURT 1 HOLD THAT THE COMMISSIO N AND BROKERAGE PAID TO FOREIGN RESIDENTS IS NOT LIABLE FOR TDS U/S 195 AS THE SAME HAS NOT ACCRUED OR ARISEN IN INDIA. THIS CONCLUSION DRAWS AUTHORITY FR OM THE EXPLANATORY NOTES TO THE FINANCE ACT 2012 IN RESPECT OF THE AMENDMENT TO SEC 195 WHEREIN EXPI 2 TO THAT SECTION WAS INTRODUCED. THE SAID EXPLANATIO N IS REPORTED AT 342 ITR (SI.) 266 AND IS REPRODUCED BELOW:- 'SECTION 195 OF THE INCOME TAX ACT REQUIRES ANY PER SON TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO A NON RESIDENT IF THE INCOME OF SUCH A NON RESIDENT IS CHARGEABLE TO TAX IN INDIA.'PERSON' HER E WOULD TAKE ITS MEANING FROM SEC 2 AND WOULD INCLUDE ALL PERSONS WHETHER RE SIDENT OR NON RESIDENT. THEREFORE A NON RESIDENT PERSON IS ALSO REQUIRED TO DEDUCT TAX AT SOURCE BEFORE MAKING PAYMENTS TO ANOTHER NON RESIDENT, IF THE PAYMENT REPRESENTS INCOME OF THE PAYEE NON RESIDENT, CHARGEABLE TO TAX IN INDIA. THERE ARE NO OTHER CONDITIONS SPECIFIED IN THE ACT AND IF THE IN COME OF THE PAYEE NON RESIDENT IS CHARGEABLE TO TAX, THEN TAX HAS TO BE D EDUCTED AT SOURCE WHETHER THE PAYMENT IS MADE BY A RESIDENT OR A NON RESIDENT .' FROM THE ABOVE, IT IS CLEAR THAT THE EXPLANATION 2 INSERTED VIDE FINANCE ACT 2012 WOULD RENDER ALL PAYMENTS MADE TO FOREIGN RESI DENTS LIABLE FOR TDS U/S 195 ONLY IF THE INCOME OF THE PAYEE NONRESIDENT IS CHARGEABLE TO TAX IN INDIA. IN THE PRESENT CASE, THE FACTS INDICATE THE OPPOSIT E THAT THE COMMISSION HAS BEEN PAID TO NON RESIDENTS FOR SERVICES RENDERED AB ROAD AND THEREFORE THE SAID COMMISSION INCOME CANNOT BE SAID TO ACCRUE OR ARISE TO THEM IN INDIA. ITA NO.1556/MUM/2018, M/S KHIMJI VISARAM & SONS 4 THERE IS THEREFORE NO REQUIREMENT FOR WITHHOLDING T AX U/S 195. IN ANY CASE, THE CASE OF THE APPELLANT IS COVERED ON IDENTICAL FACTS BY THE DECISION OF THE HON'BLE BOMBAY 1-UGH COURT CITED SUPRA I THEREFORE DELETE THE DISALLOWANCE OF RS.1,13,69,151/- ON THIS COUNT. 4. AGAINST ABOVE ORDER REVENUE/ASSESEE IS IN APPEA L BEFORE US. 5. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT T HE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISIONS OF ITAT IN ASSESSEE'S OWN CASE. 6. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE C OULD NOT DISPUTE THE PROPOSITION THAT THE ISSUE IS COVERED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEE'S OWN CASE. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND PERUSED THE RECORDS .UP ON CAREFUL CONSIDERATION WE FIND TH AT THE IMPUGNED ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF ITAT IN ASSESSEE'S OWN CASE AS UND ER:- CASE NO. ASSESSMENT YEAR ORDER DATED ITA NO.9054/MUM/2010 2007-08 08/10/2014 ITA NO.904/MUM/2015 2008-09 17/04/2017 8. IT IS NOT THE CASE THAT THE HONBLE BOMBAY HIGH COURT HAS REVERSED THESE DECISIONS. WE MAY HERE REFER PARA 6 OF ITAT ORDER FOR AY 2008-09:- WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PA RTIES. THE TRIBUNAL HAS HELD THAT PAYMENT OF SALES COMMISSION WILL NOT FALL IN CATEGORY OF FEES FOR TECHNICAL SERVICES AS DEFINED SECTION 9(1)(VII) OF THE INCOME TAX ACT. THEREFORE, THE ASS ESSEE HAS ITA NO.1556/MUM/2018, M/S KHIMJI VISARAM & SONS 5 MADE PAYMENT TO NON-RESIDENCE OVERSEAS AGENT FOR TH E PURPOSE OF PROCURING ORDER IS NOT IN NATURE OF TECHNICAL SE RVICES, THE INCOME OF NON-RESIDENCE OVERSEAS AGENT DO NOT FALL WITHIN THE PURVIEW OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961. 9. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT AS ABOVE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNE D CIT-A ACCORDINGLY WE UPHOLD THE SAME. 10. IN THE RESULT, THIS APPEAL BY THE REVENUE IS DI SMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2019. SD/- S D/- (RAVISH SOOD) (SHAMIM YAHYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 30/04/2019 F{X~{T? P.S/. .. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT (RESPECTIVE ASSESSEE) 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI, 5. ()*# ! + , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) $ %&', / ITAT, MUMBAI