DCIT, Hyderabad V. M/s Obulum Electrical Ind. Pvt. Ltd., Hyderabad

ITA 189/HYD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9830 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 09-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: C N PRASAD
• Keywords: Services rendered outside India

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SHRI G.C.GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.189/HYD/09 (ASSESSMENT YEAR 2 004-05) DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD V/S. M/S. OBULUM ELECTRICAL INDIA PVT. LTD., HYDERABAD ( PAN AAACO 2289 A ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.SUNIL BABU RESPONDENT BY : SHRI C.N.PRASAD O R D E R PER G.C.GUPTA, VICE PRESIDENT: THIS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 20 04-05 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME -TAX (APPEALS). 2. GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS A PPEAL ARE AS UNDER- 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX(APPEALS) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISAL LOWING THE COMMISSION PAYMENT IN VIEW OF APEX COURT DECISION I N THE CASE OF CIT V/S. UNION FILE EXPORTERS (1969)71 ITR 453. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTE D THAT THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS REGARDING DISALLOWANCE OF COMMISSION PAYMENT MADE BY THE ASSESSEE TO FOREIGN AGENT, M/S. IBERASA, PERU . HE SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT MADE ANY TDS D EDUCTION ON ITA NO.189./HYD/09 M/S. OBULUM ELECTRICAL INDIA PVT. LTD., HYD 2 THE SALES COMMISSION PAID TO THE FOREIGN AGENT, M/S.IB ERSA, PERU AND THEREFORE THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFI CER UNDER S.40(A)(I) OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS P URCHASED FOREIGN DEMAND DRAFTS IN ITS CURRENT ACCOUNT WITH STATE BANK O F HYDERABAD, SANATHNAGAR BRANCH IN INDIAN CURRENCY AND THE SAME WER E SENT ABROAD TO THE AGENT AND THE CURRENT ACCOUNT WAS DEBITED. THE ASSESSEE HAS MADE PROVISION FOR REMITTANCES TOWARDS SALES COMMISSION TO AGENTS ABROAD AND HAS PASSED NECESSARY ENTRIES FOR PAYMENT OF SALES COMMISSION IN T HE BOOKS MAINTAINED IN INDIA AND THE PAYMENTS WERE MADE BY T HE ASSESSEE THROUGH THE BANKS IN INDIA, AND THEREFORE, SUCH REMITTANCES ARE DEEMED TO HAVE BEEN RECEIVED IN INDIA ON BEHALF OF THE NON-RESIDENT FOREI GN AGENT OF THE ASSESSEE. HE RELIED ON THE DECISION OF THE INDORE BENCH OF THE TR IBUNAL IN THE CASE OF CLASSIC ELECTRONICS V/S. ITO (77 ITD 37) IN SUPPORT OF HIS A RGUMENTS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE COMMISSION WAS PAID TO M/S.IBERSA, PERU, WHO HAS NO OFFIC E IN INDIA AND WAS OPERATING OUTSIDE INDIA AND THE PAYMENTS BY DEMAND D RAFTS PURCHASED FROM STATE BANK OF HYDERABAD, SANATHNAGAR BRANCH WERE MADE ABROAD BY THE ASSESSEE, AND THEREFORE, NO TAX WAS DEDUCTIBLE UNDER S.195 OF THE ACT AND THEREFORE, NO DISALLOWANCE COULD BE MADE UNDER S.40(A) (I) OF THE ACT. HE SUBMITTED THAT COMMISSION WAS PAID TO THE FOREIGN AGEN T FOR SERVICES RENDERED OUTSIDE INDIA. HE SUBMITTED THAT THE CIT(A) HAS DECIDED THE ISSUE FOLLOWING THE CIRCULARS OF CBDT, BEING CIRCULAR NO.23 D ATED 23.7.1969 AND CIRCULAR NO.786 DATED 7.2.2000. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). WE FIND T HAT THE COMMISSION WAS PAID TO M/S. IBERSA, PERU, WHO HAS ADMITTEDLY NO OF FICE IN INDIA AND WAS OPERATING OUTSIDE THE COUNTRY. MERE FACT THAT THE DEM AND DRAFTS WERE PURCHASED FORM STATE BANK OF HYDERABAD, SANATHNAGAR BR ANCH AND NECESSARY ENTRIES WERE MADE AGAINST PROVISION FOR REMITTA NCES AND THE ITA NO.189./HYD/09 M/S. OBULUM ELECTRICAL INDIA PVT. LTD., HYD 3 PAYMENTS WERE POSTED IN THE ACCOUNT BOOKS OF THE ASSESSEE, I S NO GROUND TO HOLD THAT THE ASSESSEE WAS LIABLE TO MAKE TDS DEDUCTION OUT OF COMMISSION PAID BY IT. THE CBDT CIRCULARS NO. 23 DATED 23.7.19 69 AND NO.786 DATED 7.2.2000, PROVIDE THAT WHERE THE NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. ACCORDINGL Y, NO TAX IS LIABLE TO BE DEDUCTED UNDER S.195 OF THE ACT ON SUCH PAYMENTS MADE TO THE FOREIGN AGENTS AND THEREFORE, THE DISALLOWANCE MADE UNDER S.4 0(A)(I) OF THE ACT IS NOT SUSTAINABLE. THE CASE OF THE ASSESSEE THAT THE COMMISSION WAS PAID TO THE FOREIGN AGENT WAS ON SERVICES RENDERED OUTSIDE INDIA COULD NOT BE CONTROVERTED ON BEHALF OF THE REVENUE. THE CIT(A) H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE CIRCULARS CITED SU PRA ISSUED BY THE CBDT. THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE IN ACCO RDANCE WITH THE PROVISIONS OF S.195 OF THE ACT ON THE PAYMENTS MADE TO NON-RESIDENTS ONLY WHEN SUCH PAYMENTS ARE CHARGEABLE TO TAX IN INDIA IN TH E HANDS OF SUCH NON-RESIDENT RECIPIENTS. THE CIT(A) HAS GIVEN A FINDIN G THAT THE FOREIGN AGENT, M/S.IBERSA, PERU HAS NO OFFICE IN THE COUNTRY AN D WAS OPERATING OUTSIDE INDIA AND THE PAYMENTS THROUGH DEMAND DRAFTS P URCHASED IN INDIA WERE MADE ABROAD FOR SERVICES RENDERED BY THE AGENT OU TSIDE INDIA, AND HENCE NO TAX WAS DEDUCTIBLE UNDER S.195 OF THE ACT ON T HE PAYMENTS MADE TO SUCH FOREIGN AGENT. THERE BEING NO MISTAKE IN THE ORDER OF THE CIT(A) ON THIS ISSUE, WE HOLD THAT NO DISALLOWANCE UNDER S.40(A)( I) OF THE ACT IS CALLED FOR. ACCORDINGLY, ORDER OF THE CIT(A) IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE REJECTED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 11 TH FEBRUARY, 2011 SD/- SD/- (CHANDRA POOJARI) (G.C.GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT DT/- 11 TH FEBRUARY, 2011 ITA NO.189./HYD/09 M/S. OBULUM ELECTRICAL INDIA PVT. LTD., HYD 4 COPY FORWARDED TO: 1. M/S. OBULUM ELECTRICAL INDIA PVT. LTD., 16 & 17, A PIE BALANAGAR, HYDERABAD 2. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(3), HYDERA BAD 3. COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDERABAD 4. COMMISSIONER OF INCOME-TAX IV HYDERABAD 5. THE DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S