DCIT, New Delhi V. M/s. Calcutta Test House Pvt. Ltd, New Delhi

ITA 1782/DEL/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7080 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-10-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 13-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH YADAV
• Keywords: Permanent establishment

Judgement Text

ITA NO. 1782/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1782/DEL/2011 A.Y. : 2000-01 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI VS. M/S CALCUTTA TEST HOUSE PVT. LTD., K-1/30, CHITRANJAN PARK, NEW DELHI (PAN/GIR NO. : AAACC0991K) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. PRAKASH YADAV, ADV. DEPARTMENT BY : SH. ROHIT GARG, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 14.2.2 011 PERTAINING TO ASSESSMENT YEAR 2000-01. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF ` 38,26,696/- MADE ON ACCOUNT OF DISALLOWANCE OF HIRIN G CHARGES BY INVOKING THE PROVISIONS OF SECTION 40(A) (IA) OF THE IT ACT, IGNORING THAT THE ASSESSEE FAILED T O DEDUCT THE TDS AND ALSO FAILED TO SUBMIT THE ORIGINAL AGREEMENT WITH THE OIGA AS DIRECTED BY THE HONBLE ITAT. ITA NO. 1782/DEL/2011 2 (II) THE APPELLANT CRAVES LEAVE FOR RESOLVING THE RIGHT TO AMEND, MODIFY, AFTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING O F THIS APPEAL. 3. IN THIS CASE ASSESSING OFFICER REFERRED TO THE PROVISION OF SECTION 195 AND SECTION 40(A)(I). THE ASSESSING OFFICER N OTED THAT ASSESSEE HAD HIRED MACHINERY ON LEASE FROM UK COMPANY, AND PAI D HIRING CHARGES TO SUCH FOREIGN COMPANY. THE SAID UK COMPANY HAD BUSINESS CONNECTION WITH THE ASSESSEE. THUS, CONSIDERING T HE FACT OF THE CASE AND LEGAL PROVISIONS MENTIONED U/S 195 AND SECTION 40(A)(I), THE ASSESSING OFFICER HELD THAT ASSESSEE WAS LIABLE TO DEDUCT THE TDS ON HIRING CHARGES PAID ` 38,26,696/- TO THE FOREIGN CO MPANY. AS THE ASSESSEE FAILED TO DEDUCT THE TAX AND ALSO FAILED T O SUBMIT THE ORIGINAL AGREEMENT WITH THE FOREIGN COMPANY, THE EXPENDITURE W AS ADDED BACK. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE MATTER HAS EARLIER TRAVELLE D TO THE TRIBUNAL AND THE TRIBUNAL IN ITS ORDER DATED 06.2.2009 HAS GIVEN THE FOLLOWING FINDING:- WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS CAREFULLY. IT IS TRUE THAT ASSE SSEE FAILED TO PRODUCE THE AGREEMENT EXECUTED BETWEEN IT AND OA IG. IN THE ABSENCE OF THIS AGREEMENT, IT WAS QUITE DIFF ICULT TO DETERMINE THE TRUE NATURE OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE FOREIGN COLLABORATORS FOR WHICH IT HAS MADE PAYMENT OF HIRE CHARGES. THE ASSESSING OFFICER PROCEEDED ON THE PREMISES THAT HIRE CHARGES PAID BY THE ITA NO. 1782/DEL/2011 3 ASSESSEE ARE TO BE DISALLOWED BECAUSE IT FAILED TO DEDUCT THE TDS. HOWEVER, IN CASE ASSESSEE IS ABLE TO DEMONS TRATE THAT SUCH PAYMENTS ARE NOT THE SUMS CHARGEABLE TO TA X IN INDIA THEN PROBABLY IT CANNOT BE FASTENED WITH THE LIABILITY OF TAX REQUIRED TO BE DEDUCT WHILE MAKING THE PAYMENT O F CREDITING THE ACCOUNT OF NON-RESIDENT. SINCE THIS A MOUNT IS AN ESSENTIAL DOCUMENT FOR ADJUDICATING THE CONTROVE RSY BETWEEN THE PARTIES, THEREFORE, WE PERMIT THE ASSESS EE TO PLACE THIS DOCUMENT ON RECORD AND SET ASIDE THE ISS UE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATIO N. HOWEVER, IT IS NEEDLESS TO SAY THAT WHATEVER OBSERVATIONS MAD E BY US WHILE SETTING ASIDE THESE APPEALS TO THE FILE OF TH E ASSESSING OFFICER, WOULD NOT IMPAIR OR INJUR THE ASSESSING OF FICERS CASE OR WOULD CAUSE PREJUDICE TO THE DEFENCE OR EXP LANATION OF THE ASSESSEE. 4.1 FROM THE ABOVE LD. COMMISSIONER OF INCOME TAX (APPE ALS) NOTED THAT THE TRIBUNAL HAD ALREADY TAKEN THE AGREEMENT W ITH THE FOREIGN COMPANY ON RECORD. HENCE, HE NOTED THAT THUS IF TH E ASSESSEE WAS NOT ABLE TO ATTEND ON ONE OCCASION WITH THE COPY O F AGREEMENT, IT CANNOT BE TAKEN AS A SERIOUS ISSUE. LD. COMMISSION ER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT WHEN THE ASSESSEE W AS REMITTING MONEY FOR THE PAYMENT, HE OBTAINED THE CERTIFICATE FR OM THE CHARTERED ACCOUNTANTS. THIS WAS IN ACCORDANCE WITH THE BOARD S CIRCULAR NO. 759. IN THE IMPUGNED ORDER, IT IS NOT A FINDING OF THE ASSESSING OFFICER THAT THE FOREIGN ENTITY HAD A PERMANENT ESTABLISHMEN T OR A BUSINESS CONNECTION. LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS HELD THAT THIS WAS ONLY AN ALLEGATION. HE OBSERVED THAT A CLOSE PERUSAL OF THE AGREEMENT CLEARLY SHOWS THAT THE DELIVERY OF THE PLA NT AND MACHINERY ITA NO. 1782/DEL/2011 4 WAS TO BE OUTSIDE INDIA, WHICH MAKES THE CASE OF PER MANENT ESTABLISHMENT OR BUSINESS CONNECTION EVEN MORE WEAKER . FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT T HERE WAS NOTHING IN THE IMPUGNED ORDER WHICH WOULD SUGGEST T HAT THE FOREIGN ENTITY WAS TAXABLE IN INDIA. MOREOVER, THE PAYMENT H AD ALREADY BEEN MADE. HENCE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN THESE CIRCUMSTANCES, THE ADDITION U/S 40(A)(IA) CANN OT BE UPHELD. HENCE, HE DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE HAVE GONE THROUGH THE AGREEMENT SIGNED ON 18.1.1997 BETWEEN THE ASSESSEE AND M/S OCEANEERING INTERNATIONAL AG (OIAG) REGISTERED AT SWITZERLAND. THE OIAG WAS STATED TO BE SOLE, LAWFUL AND ABSOLUTE OW NER OF THE MACHINERY PROVIDED TO THE ASSESSEE. IT WAS FURTHER STATED THAT ACTUAL PHYSICAL POSSESSION OF THE SAID MACHINERY COULD BE D ELIVERED BY THE OIAG TO THE ASSESSEE OUTSIDE INDIA. IT WAS FURTHE R GIVEN IN THE AGREEMENT THAT THE RISK AND REWARD PERTAINING TO OW NERSHIPS REMAINED WITH OIAG. FURTHER, THE CONSIDERATION WAS TO BE PAID AT THE RATES SPECIFIED IN ANNEXURE B IN THE AGREEMENT. R EFERRING TO THE RELATIONSHIP BETWEEN THE PARTIES, THE AGREEMENT SPEC IFIED THAT IT DID NOT CREATE THE PARTNERSHIP JOINT VENTURE BETWEEN TH E TWO PARTIES. THE AGREEMENT WAS ENTERED ON A PRINCIPLE TO PRINCIP LE BASIS. THUS, WE ITA NO. 1782/DEL/2011 5 FIND THAT AS PER THE AGREEMENT THE MACHINERY WAS TO BE DELIVERED TO THE ASSESSEE OUTSIDE THE COUNTRY. HENCE, THERE CA N BE NO CASE OF THE VENDOR HAVING A PERMANENT ESTABLISHMENT IN INDIA. MOREOVER, THERE IS NO CASE FOR A BUSINESS CONNECTION IN INDIA. THERE IS NO FINDING IN THE IMPUGNED ORDER WHICH WOULD SUGGEST THAT THE VEND OR HAD A PE OR A BUSINESS CONNECTION IN INDIA. 7. THE ADDITION IN THE PRESENT CASE HAS BEEN MADE O NLY ON THE GROUND THAT ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE FROM THE PAYMENTS MADE BY IT TO OIAG. IT HAS ALREADY BEEN ME NTIONED THAT THERE IS NO MATERIAL ON RECORD ON THE BASIS OF WHIC H IT CAN BE SAID THAT OIAG WAS HAVING ANY PRESENCE IN INDIA, BY WHICH IT COULD BE SAID THAT THE SAID CONCERN HAS MAINTAINED ITS PE IN INDIA. THE OBLIGATION TO DEDUCT TAX ON THE PAYMENTS MADE BY A PERSON TO A NON- RESIDENT IS DESCRIBED IN SECTION 195 OF THE ACT, WHICH STIPULAT E OF ANY AMOUNT PAID WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THIS AC T. UNLESS THE PAYMENT MADE TO NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA, THERE IS NO OBLIGATION ON THE PAYER TO DEDUCT TAX AT SOURCE AC CORDING TO THE PROVISIONS OF SECTION 195. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE INCOME OF THE PAYEE WAS CHARGEABLE TO TAX IN INDIA IN ANY MANNER. THEREFORE, THE QUESTION OF DEDUCTION AT SOU RCE FROM SUCH PAYMENT DOES NOT ARISE. HENCE, WE HOLD THAT LD. C OMMISSIONER OF ITA NO. 1782/DEL/2011 6 INCOME TAX (APPEALS) HAS RIGHTLY HELD THAT IMPUGNED DISALLOWANCE U/S 40(A)(IA) COULD NOT BE MADE. ACCORDINGLY, WE CONFI RM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/2011. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 28/10/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES