Asstt. Commissioner of Income Tax-III, Kanpur V. M/s. Indian Leather Industries, Kanpur

ITA 170/LKW/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8172 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Services rendered outside India; Retrospective amendment; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI MEHAR SI NGH , ACCOUNTANT MEMBER ITA NO. 170/LKW/2012 ASSESSMENT YEAR: 2008 - 09 ACIT - III KANPUR V. M/S INDIAN LEATHER INDUSTRIES 99 /88, NAZIR BAGH KANPUR PAN: AAAFI4105Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. JAGDISH, CIT (DR) RESPONDENT BY: SHRI. RAKESH GARG, ADVOCATE DATE OF HEARING: 04.07.2012 DATE OF PRONOUNCEMENT: 22.08.2012 O R D E R PER S UNIL KUMAR YADAV : THIS APPE AL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) ON VARIOUS GROUNDS, WHICH ARE AS UNDER: - 1 . THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,08,24,404 / - ON ACCOUNT OF NO N - DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENT WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2 . THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - LL, KANPUR HAS : - 2 - : ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION WITHOUT CONSIDERING THE BOARD'S CIRCULAR NO.7 OF 2009. 3 . THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS NOT APPRECIATED THE SETTLED PRINCIPLE IN RESPECT OF INTERPRETATION OF PROSPECTIVE OR RETROSPECTIVE N ATURE OF AMENDMENT IN THE STATUTE AS LAID DOWN BY THE HON'BLE SUPREME COU RT IN THE CASE OF CI T VS GOLD COIN HEALTH FOOD PVT. LTD. (2008) 304 ITR 308 (SC) AND CIT VS MOSER BAER INDIA LTD. [2009] 315 1TR 460 (SC). 4 . THAT THE LD. COMMISSIONER OF INCOME TAX (APP EALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE SERVICE RENDERED BY THE NON - RESIDENT AGENT TO PROCURE ORDERS FROM FOREIGN BUYERS ARE PURELY TECHNICAL OR MANAGERIAL IN NATURE. THEREFORE, THE PROVISION OF SECTION 9(1) (VI I) IS CLEARLY APPLICABLE ON THE ASSESSEE. 5 . THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - II, KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE PAYMENT BY THE RESIDENT ASSESSEE IN CONNECTION WITH HIS BUSINESS IN INDIA TO A PERSON OUTSIDE THE COUNTRY IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO THE NON - RESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM. 6 . THAT THE ORDER OF THE LD. CIT (A) - II, KANPUR DATED 10.01.2012 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 27.12.2010 TO BE RESTORED. 2 . THOUGH VARIOUS GROUNDS ARE RAISED IN THIS APPEAL, BUT THEY ALL RELATE TO ONE ISSUE WITH REGARD TO THE DISALLOWANCE OF PAYMENT OF : - 3 - : COMMISSION PAID BY THE ASSESSEE TO FOREIGN AGENT ON ACCOUNT OF NON DED UCTION OF TDS. 3 . THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING OF LEATHER SHOE UPPERS AND LEATHER ARTICLES AND MADE SALE S OUTSIDE INDIA. ASSESSEES TURNOVER BEING EXPORT SAL E, IT HAD TO PAY ` 1,08,24,404 AS COMMISSION TO FOREIGN AGENT FOR PROCURING EXPORT ORDERS FOR THE ASSESSEE. THE SAID EXPENDITURE IS CLAIMED BY THE ASSESSEE UNDER THE HEAD FOREIGN AGENT COMMISSION ACCOUNT AS PER SCHEDULE 19 OF SELLING & DISTRIBUTION EXPEN SES ATTACHED WITH THE AUDITED PROFIT AND LOSS ACCOUNT. IN RESPONSE TO THE QUERIES RAISED BY THE ASSESSING OFFICER FOR NON - DEDUCTION OF TDS ON THE PAYMENT OF COMMISSION , IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE COMMISSION WAS PAID TO FOREIGN AGE NT WHO IS RESIDENT OF GERMANY AND DID NOT ATTRACT TDS UNDER SECTION 195 OF THE INCOME - TAX ACT, 1961 ((HEREINAFTER CALLED IN SHORT THE ACT') BECAUSE THERE WERE NO MANAGERIAL OR TECHNICAL SERVICES PROVIDED BY THE AGENT. THE AGENT WAS SIMPLY PROCURING EXPOR T ORDER FOR THE ASSESSEE. THE FOREIGN AGENT HAD NO PERMANENT ESTABLISHMENT IN INDIA AND COMMISSION PAID TO FOREIGN AGENT WAS IN FOREIGN EXCHANGE REMITTED THROUGH BANK. SINCE NO INCOME CHARGEABLE TO TAX HAD ARISEN IN INDIA AND AS SUCH NO TDS WAS REQUIRED TO BE MADE UNDER SECTION 195 OF THE ACT. BEING NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED ASSESSEES CLAIM OF EXEMPTION PAYMENT ON THE PLEA THAT NO TDS WAS MADE AS REQUIRED UNDER SECTION 195 READ WITH SECTION 9(1) (VII) AND SECTION 40(A)(I) OF THE ACT AND MADE ADDITION OF ` 1,08,24,404. 4 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND HAD, INTER - ALIA, SUBMITTED THAT THE SERVICE S PROVIDED BY THE FOREIGN AGENT IN ASSESSEES CASE WERE NOT IN THE NATURE OF SERV ICES COVERED UNDER SECTION 9(1)(VII) OF THE ACT BECAUSE NO MANAGERIAL OR CONSULTANCY SERVICES WERE : - 4 - : PROVIDED BY ITS AGENT. THE ASSESSEE ALSO PLACED RELIANCE UPON THE CBDT CIRCULAR NO.7/2009 DATED 22.10.2009 THROUGH WHICH EARLIER CIRCULARS ON THE SAME MATTE R WERE WITHDRAWN. THE WITHDRAWAL OF EARLIER CIRCULARS CAN ONLY BE PROSPECTIVE EFFECT AND NOT RETROSPECTIVE AS HELD BY THE TRIBUNAL IN THE CASE OF DCIT V. SIEMENS AKETIEGESELLSCHAFT [2010] TIOL 102 AND OTHER ORDERS. THE ASSESSEE HAS ALSO PLACED RELIANCE O N OLD CIRCULARS OF CBDT , AS PER WHICH THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENTS. THE LD. CIT(A) EXAMINED THE ISSUE IN DETAIL IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, OLD AND NEW CBDT CIRCULARS AND HAS F INALLY CON C LUDED THAT FOR NON - DEDUCTION OF TDS ON COMMISSION PAYMENT, DISALLOWANCE CANNOT BE MADE. THE RELEVANT OBSERVATIONS OF THE LD. CIT(A) ARE EXTRACTED HEREUNDER: - 8. THE LD. COUNSEL OF THE APPELLANT CONTENDED THAT COMMISSION HAS BEEN PAID TO NONRE SIDENT FOREIGN AGENT ABROAD FOR THE SERVICES RENDERED OUTSIDE INDIA. SINCE INCOME ITSELF WAS NOT CHARGEABLE TO TAX IN INDIA, THEREFORE, THERE WAS NO LIABILITY OF THE APPELLANT TO DEDUCT TAX U/S 195(1) OF THE I.T. ACT AND HENCE APPLICATION OF SECTION 40(A)( I) IS NOT ATTRACTED. HE RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS. TOSHOKA LTD. 125 ITR 525 (SC) WHERE ON THE IDENTICAL FACTS IT HAS BEEN HELD THAT AMOUNT OF COMMISSION EARNED BY NONRESIDENT FOREIGN AGENTS FOR RENDERING SERVICE OUTSIDE INDIA COULD NOT BE DEEMED TO BE INCOME. THEREFORE DISALLOWANCE OF PAYMENT OF COMMISSION OF RS.10824404/ - TO THE FOREIGN AGENTS ABROAD FOR THE SERVICES RENDERED OUTSIDE INDIA MERELY ON ACCOUNT OF NON - DEDUCTION OF TDS IS NOT JUSTIFIED. THE A.R OF THE APPELLA NT HAS ALSO ARGUED THAT THE SERVICES RENDERED BY THE AGENTS ARE NOT OF TECHNICAL OR MANAGERIAL NATURE. : - 5 - : THE AO HAS ALSO ACCEPTED THAT THE COMMISSION HAS BEEN PAID TO THE FOREIGN NON RESIDENT ABROAD FOR THE SERVICES RENDERED OUTSIDE INDIA. IN VIEW OF THIS PO SITION AND IN THE LIGHT OF SUPREME COURT'S DECISION IN THE CASE OF CIT VS. TOSHOKA LTD. (SUPRA) AND DECISION OF JURISDICTIONAL BENCH OF ITAT, LUCKNOW IN THE CASE OF DY. CIT VS. SANJIV GUPTA [2011] 50 DTR 225 (ITAT, LUCKNOW), I DELETE THE DISALLOWANCE OF CO MMISSION PAYMENT OF ` 1,08,24,404 TO THE NONRESIDENT AGENT FOR THE SERVICES RENDERED OUTSIDE INDIA WHICH WAS NOT CHARGEABLE TO TAX IN INDIA. HENCE GROUND S NO.1 & 2 ARE ALLOWED. 5 . AGGRIEVED, THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND PLACED HEAVY RELIANCE UPON THE ORDER OF THE ASSESSING OFFICER. THE LD. D.R. HAS CONTENDED THAT CIRCULAR NO.7/2009 WOULD APPLY TO THE IMPUGNED ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2008 - 09, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PAYMENT OF CO MMISSION ON ACCOUNT OF NON - DEDUCTION OF TDS. 6 . THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. SANJIV GUPTA [2011] 135 TTJ (LUCKNOW) 641 IN WHICH IT HAS BEE N HELD THAT CIRCULAR NO.7/2009 DATED 22.10.2009 WOULD HAVE PROSPECTIVE EFFECT AND WILL NOT APPLY TO THE ASSESSMENT YEAR 2008 - 09. THE LD. CIT(A) HAS ALSO ADJUDICATED THE ISSUE FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL AND ALSO THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. TOSHOKA LTD. (SUPRA) . 7 . HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF RECORD, WE FIND THAT THE LD. CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND ALSO THE ORDER OF THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. SANJIV GUPTA (SUPRA) IN WHICH THE TRIBUNAL HAS HELD THAT DISALLOWANCE UNDER : - 6 - : SECTION 40(A)(I) ON PAYMENT OF COMMISSION TO NON - RESIDENT CANNOT BE MADE IN THE LIGHT OF OLD CIRCULA R NO.23 DATED 23.7.1969 AND CIRCULAR NO.786 DATED 7.2.2000 AS THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TDS UNDER SECTION 195 OF THE ACT WITH REGARD TO PAYMENT OF COMMISSION TO FOREIGN AGENT. CIRCULAR NO.7/2009 DATED 20.10.2009 WITHDRAWING THE EARLIER CIRCUL AR NOS.786 DATED 7.2.2000 AND 23 DATED 23.7.1969 WILL BE OPERATIVE ONLY FROM THE DATE OF ISSUE AND HAD NO RETROSPECTIVE EFFECT I.E. W.E.F. ASSESSMENT YEAR 2009 - 10. SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL OF THIS BENCH, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS ADJUDICATED THE ISSUE FOLLOWING THE ORDER OF THE TRIBUNAL. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE CASE OF DCIT V. SANJIV GUPTA (SUPRA) ARE EXTRACTED HEREUNDER: - AS PER THE CBDT CIRCULAR NO. 23, DT. 23RD JULY, 1969 AND CIRCULAR NO. 786, DT. 7TH FEB., 2000, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE UNDER S. 195 WITH REGARD TO PAYMENT OF COMMISSION TO FOREIGN AGENT. IN THE INSTANT CASE, THE ASSESSMENT YEAR INVOLVED IS 2007 - 0 8 AND THE RELEVANT PREVIOUS YEAR IS 2006 - 07. ADMITTEDLY, RETURN OF INCOME WAS FILED ON 30TH OCT., 2007. AT THE TIME OF FILING OF THE RETURN, CIRCULAR NO. 7 OF 2009, DT. 22ND OCT., 2009 WAS NOT IN FORCE BY WHICH THE CBDT WITHDREW CIRCULAR NO. 23, DT. 23RD J ULY, 1969 WITH IMMEDIATE EFFECT. WHERE A CIRCULAR ISSUED EARLIER CREATED A VESTED RIGHT IN THE TAXPAYER AND SUCH RIGHT IS SOUGHT TO BE CURTAILED OR WITHDRAWN BY A SUBSEQUENT CIRCULAR, THEN SUCH SUBSEQUENT CIRCULAR WILL NOT HAVE A RETROSPECTIVE EFFECT. NO I NFIRMITY IS FOUND IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND ACCORDINGLY THE SAME IS UPHELD. : - 7 - : 8 . SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, WE FIND NO JUSTIFICATION TO TAKE A CONTRARY VIEW IN THIS APPEAL. ACCORDIN GLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY ADJUDICATED THE ISSUE FOLLOWING THE ORDER OF THE TRIBUNAL. 9 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.8.2012. S D/ - S D/ - [ MEHAR SINGH ] [ S UNIL KUMAR Y ADAV ] ACCO UNTANT MEMBER JUDICIAL MEMBER DATED: 22.8.2012 JJ: 0907 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR