Moopan Abdul Hameed Nagoor Meeral, CHENNAI V. ACIT, CHENNAI

ITA 1645/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8890 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Services rendered outside India; Deemed to accrue or arise in india

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL , C/SMC BENCH, CHENNAI . , ! BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1645/MDS/2014 ( / ASSESSMENT YEAR: 2008-09) MRS. MOOPAN ABDUL HAMEED NAGOOR MERRAL, D/O. ABDUL HAMEED, NEW NO.14, OLD NO.23, KAREEM SUBEDAR STREET, ROYAPETTAH, CHENNAI-600 014. VS ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-IX, CHENNAI. PAN: AFUPN8023M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 13 TH JUNE, 2016 /DATE OF PRONOUNCEMENT : 1 ST JULY, 2016 / O R D E R THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS)- VII, CHENNAI DATED 26.03.2014 IN ITA NO.1043/13 -14 PASSED UNDER SECTION143(3) R.W.S.147 & 250(6) OF TH E ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN HER APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE LEARNED ASS ESSING OFFICER AGAINST FOREIGN AGENCY COMMISSION EXPENDITU RE OF 2 ITA NO.1645/MDS/2014 RS.28,71,581/- DUE TO NON-DEDUCTION OF TDS BY INV OKING THE PROVISIONS OF SECTION 40(A)(I) R.W.S 195 OF THE ACT . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS THE PROPRIETOR OF M/S.TOPSTAR EXPORT FABRICS FILED HER RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 30.09.200 8 DECLARING INCOME OF ` 9,28,030/-. ON SCRUTINY, THE LEARNED ASSESSING OFFICER NOTICED FROM THE BOOKS OF ACCOUNT S OF M/S.TOP STAR EXPORT FABRICS THAT THE ASSESSEE HAD M ADE PAYMENT OF ` 28,71,581/- TOWARDS FOREIGN AGENTS COMMISSION. SINCE THE ASSESSEE HAD FAILED TO DEDUCT TDS ON THE AFORESAID PAYMENT MADE TOWARDS FOREIGN AGENTS COMMI SSION THE LEARNED ASSESSING OFFICER OPINED THAT THE PROVI SIONS OF SECTION 40(A)(IA) WILL BE APPLICABLE AND ACCORDINGL Y MADE ADDITION. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) SUSTAINED THE ADDITION MADE BY THE LEARNE D ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS NO W IN APPEAL BEFORE THE TRIBUNAL. 3 ITA NO.1645/MDS/2014 5. AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENTA TIVE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FA IZAN SHOES PVT. LTD. IN TAX CASE APPEAL NO.789 OF 2013 DATED 22.07.2014, WHICH THE LEARNED DEPARTMENTAL REPRESEN TATIVE COULD NOT CONTROVERT. 6. AFTER HEARING BOTH SIDES, I FIND MERIT IN THE AR GUMENTS OF THE LEARNED AUTHORIZED REPRESENTATIVE. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CITED SUPRA H AS HELD AS FOLLOWS:- 10. WHILE DEALING WITH SECTION 9(1) OF THE ACT, TH E SUPREME COURT IN COMMISSIONER OF INCOME TAX V. TOSHOKU LIMITED, (1980) 125 ITR 525, ON CONSIDERING A TRANSACTION WHERE TOBACCO WAS EXPORTED TO JAPAN AND FRANCE AND SOLD THROUGH NON-RESIDENT ASSESSEES WHO WERE PAID COMMISSION, HELD AS UNDER: 8. THE SECOND ASPECT OF THE SAME QUESTION IS WHETHER THE COMMISSION AMOUNTS CREDITED IN THE BOOKS OF THE STATUTORY AGENT CAN BE TREATED AS INCOMES ACCRUED, ARISEN, OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA TO THE NON-RESIDENT ASSESSEES DURING THE RELEVANT YEAR. THIS TAKES US TO S. 9 OF THE ACT. IT IS URGED THAT THE COMMISSION AMOUNTS SHOULD BE TREATED AS INCOMES DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA AS THEY, ACCORDING TO THE DEPARTMENT, HAD EITHER ACCRUED OR ARISEN THROUGH AND FROM THE BUSINESS CONNECTION IN INDIA THAT EXISTED BETWEEN THE NON-RESIDENT ASSESSEES AND THE STATUTORY AGENT. THIS CONTENTION OVERLOOKS THE EFFECT OF CL. (A) OF THE EXPLANATION TO CL. (I) OF 4 ITA NO.1645/MDS/2014 SUB-S. (1) OF S. 9 OF THE ACT WHICH PROVIDES THAT I N THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THAT CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOM E AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA. IF ALL SUCH OPERATIONS ARE CARRIED OUT IN INDIA, THE ENTIRE INCOME ACCRUING THERE FROM SHALL BE DEEMED TO HAVE ACCRUED IN INDIA. IF HOWEVER, ALL THE OPERATIONS ARE NOT CARRI ED OUT IN THE TAXABLE TERRITORIES, THE PROFITS AND GAI NS OF BUSINESS DEEMED TO ACCRUE IN INDIA THROUGH AND FROM BUSINESS CONNECTION IN INDIA SHALL BE ONLY SUCH PROFITS AND GAINS AS ARE REASONABLY ATTRIBUTABLE TO THAT PART OF THE OPERATIONS CARRIED OUT IN THE TAXABLE TERRITORIES. IF NO OPERATIONS OF BUSINESS ARE CARRIED OUT IN THE TAXABLE TERRITORIES , IT FOLLOWS THAT THE INCOME ACCRUING OR ARISING ABROAD THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA CANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA (SEE CIT V. R. D. AGGARWAL AND CO. [1965] 56 ITR 20 (SC) AND CARBORANDUM CO. V. CIT [1977] 108 ITR 335 (SC) WHICH ARE DECIDED ON THE BASIS OF S. 42 OF THE INDIAN I.T. ACT, 1922, WHICH CORRESPONDS TO S. 9(1)(I) OF THE ACT). 9. IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORIES. THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO BE REMITTED BY THE PURCHASERS FROM ABROAD DOES NOT AMOUNT TO AN OPERATION CARRIED OUT BY THE ASSESSEES IN INDIA AS CONTEMPLATED BY CL. (A) OF TH E EXPLANATION TO S. 9(1)(I) OF THE ACT. THE COMMISSIO N AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE INDIA CANNOT, THEREFORE, BE DEEMED TO BE INCOMES WHICH HAVE EITHER ACCRUED OR ARISEN IN INDIA. THE HIGH COURT WAS, THEREFORE, RIGHT IN ANSWERING THE QUESTION AGAINST THE DEPARTMENT. 11. THE FACTS OF THE PRESENT CASE ARE AKIN TO THE F ACTS OF THE DECISION IN TOSHOKU LIMITED CASE, REFERRED SUPR A. IN THE INSTANT CASE ALSO THE ASSESSEE ENGAGED THE SERV ICES OF NON-RESIDENT AGENT TO PROCURE EXPORT ORDERS AND PAID COMMISSION. THAT APART, THE COMMISSIONER OF INCOME (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY AP PLIED 5 ITA NO.1645/MDS/2014 THE PRINCIPLE LAID DOWN IN GE INDIA TECHNOLOGY CEN. (P) LTD. CASE, REFERRED SUPRA, TO HOLD THAT THE ASSESSE E IS NOT LIABLE TO DEDUCT TAX AT SOURCE WHEN THE NON-RESIDEN T AGENT PROVIDES SERVICES OUTSIDE INDIA ON PAYMENT OF COMMISSION. 12. IN THE LIGHT OF THE ABOVE SAID DECISIONS AND TH E FINDING RENDERED BY US ON THE EARLIER ISSUE THAT THE SERVIC ES RENDERED BY THE NON-RESIDENT AGENT CAN AT BEST BE C ALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMEN T AND WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TE CHNICAL SERVICES, WE ARE THE FIRM VIEW THAT SECTION 9 OF TH E ACT IS NOT APPLICABLE TO THE CASE ON HAND AND CONSEQUENTLY , SECTION 195 OF THE ACT DOES NOT COME INTO PLAY. IN VIEW OF THE ABOVE FINDING, THE DECISION OF THE SUPREME COUR T IN TRANSMISSION CORPORATION OF A.P. LTD. CASE, REFERRE D SUPRA, RELIED UPON BY THE LEARNED STANDING COUNSEL FOR THE REVENUE IS NOT APPLICABLE TO THE FACTS OF THE P RESENT CASE. WE FIND NO INFIRMITY IN THE ORDER OF THE TRIB UNAL IN CONFIRMING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 7. SINCE THE FACTS IN THE CASE OF THE ASSESSEE IS I DENTICAL TO THE FACTS OF THE CASE DECIDED BY THE HONBLE JUR ISDICTIONAL HIGH COURT MENTIONED HEREIN ABOVE, WHICH IS NOT DIS PUTED BY BOTH THE PARTIES, RESPECTFULLY FOLLOWING THE SAME W E HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELETE THE ADDITION OF ` 28,71,581/- BEING PAYMENT MADE OUTSIDE INDIA FOR S ERVICES RENDERED OUTSIDE INDIA TO FOREIGN AGENTS TOWARDS F OREIGN AGENCY COMMISSION INVOKING THE PROVISIONS OF SECTIO N 9(1)(VII) AND 40(A)(IA) OF THE ACT. 6 ITA NO.1645/MDS/2014 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 1 ST JULY, 2016 SD/- ( . ) ( A.MOHAN ALA NKAMONY ) # / ACCOUNTANT MEMBER % /CHENNAI, & /DATED 1 ST JULY, 2016 SOMU () *) /COPY TO: 1. APPELLANT 2. RESPONDENT 3. + () /CIT(A) 4. + /CIT 5. ) 0 /DR 6. /GF .