TMAR Shoes , CHENNAI V. ACIT Non Corporate Circle 6 , CHENNAI

ITA 2029/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5876 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 22-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: G SEETHARAMANC A
• Keywords: Services rendered outside India; Retrospective amendment

Judgement Text

, A/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL A/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2029 /MDS./2017 ( ASSESSMENT YEAR : 2009-10 ) M/S.TMAR SHOES , NO.48,WUTHUCATTAN STREET, PERIAMET,CHENNAI 600 003. VS. THE ACIT, NON-CORPORATE CIRCLE-6, CHENNAI-6. PAN AAEFT 2924 N ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.G.SEETHARAMAN,C.A / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 09.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 09.11.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A)-5, CHENN AI DATED 04.07.2017 PERTAINING TO ASSESSMENT YEAR 2009-10. ITA NO.2029/MDS/2017 2 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR C ONSIDERATION. 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED B OTH IN LAW AND ON THE FACTS OF THE CASE IN DISALLOWING THE COMMISSION PAID BY THE APPELLANT TO THE NON-RESIDENT AGENT UNDER SECTION 4 0(A)(I), AMOUNTING TO ` 3,91,194/-. 2. HE ERRED IN UPHOLDING THE DISALLOWANCE U/S.40(A) (I) FOR COMMISSION PAID TO THE NON-RESIDENT AGENT, ON THE GROUND THAT THE COMMISSIONER PAID BY THE APPELLANT IS INCOME CHARGEABLE TO TAX I N INDIA AND THE TAX SHOULD HAVE BEEN DEDUCTED BY THE APPELLANT U/S. 195 OF THE ACT. 3. HE FAILED TO APPRECIATE THAT THE COMMISSION PAID TO THE NON-RESIDENT IS FOR THE SERVICES RENDERED OUTSIDE INDIA AND THAT, I T WAS NOT TAXABLE IN INDIA AND, THEREFORE, TAX NEED NOT BE DEDUCTED AT S OURCE. 4. THE APPELLANT SUBMITS THAT THE DISALLOWANCE IS U NREASONABLE. 5. THE APPELLANT, THEREFORE, PRAYS THAT THE DISALLO WANCE OF ` 3,91,194/- MADE U/S.40(A)(I) MAY BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF ` 26,12,100/- ON 26,02.2010. THE CASE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND ORDER U/S.143(3) OF THE ACT WAS PASSED ON 19.12.201 1 ACCEPTING THE RETURNED INCOME. FURTHER, THE AO NOTICED THAT THE A SSESSEE HAD DEBITED A SUM OF RS.10,57,763/- ON ACCOUNT OF COMMI SSION PAYMENT. OUT OF THE SAID AMOUNT PAYMENTS MADE TO LOCAL AGENT S ARE AT ` 6,66,569/- AND TO FOREIGN AGENT AT ` 3,91,194/-. IT IS FURTHER OBSERVED ITA NO.2029/MDS/2017 3 THAT THE ASSESSEE HAS DEDUCTED TDS OUT OF LOCAL AGE NCY COMMISSION PAYMENTS, HOWEVER NO TAX WAS DEDUCTED AT SOURCE AT THE TIME OF MAKING OVERSEAS COMMISSION PAYMENT OF ` 3,91,194/-. IN VIEW OF INSERTION OF EXPLANATION 4 TO SEC.9(1)(I) WITH CORR ESPONDING INTRODUCTION-OF EXPLANATION 2 TO SECTION 195(1), BO TH BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.1962 , THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON COMMISSION PA YMENTS OF RS.3,91,194/- TO FOREIGN AGENTS WHICH THE ASSESSEE FAILED TO DO SO THEREBY VIOLATING THE PROVISIONS OF SECTION U/S.40A (A)(I) OF THE I.T. ACT, 1961. ACCORDING TO LD. ASSESSING OFFICER, THE INCOM E CHARGEABLE TO TAX TO THE EXTENT OF ` 3,91,194/- HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION147 OF THE INCOME TAX ACT, 1961, PROCEEDINGS U/S.147 WAS INITIATED AND NOTICE U/S.148 WAS ISSUED ON 28.03.2014 WHICH WAS DULY SERVED ON THE ASSESSEE ON 29.03.2014 . AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICER, THE ASSESSEE CA RRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) AFTER G OING THROUGH THE AOS REMAND REPORT AND FOLLOWING THE DECISION OF CO -ORDINATE BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ACIT VS. EURO LEDER FASHIONS LTD IN 64 TAXMANN.COM 253(CHENNAI), CONFI RMED THE ORDER ITA NO.2029/MDS/2017 4 OF LD. ASSESSING OFFICER. AGAINST THE ORDER OF LD.C IT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LD. AR, FURTHER SUBMITTED THAT T HE SERVICES RENDERED BY THE NON-RESIDENT AGENT COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVIC ES' AND, THEREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQUENTLY, SEC TION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSES SEE TO THE NON- RESIDENT TO BE DELETED.' 4.1 FURTHER, THE LD.A.R SUBMITTED THAT THE INCOME H AS BEEN ACCRUING OUTSIDE INDIA FOR THE SERVICES RENDERED FOR MARKETI NG ASSESSEE'S PRODUCTS IN ABROAD AND RECIPIENT HAS NO BUSINESS CO NNECTION IN INDIA, WHAT IS PAID TO THE AGENT IS NOT TAXABLE IN INDIA, HENCE, THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE FROM THAT PA YMENT AND NO ASSESSMENT OF RECIPIENT HAS BEEN MADE IN INDIA. FUR THER, HE SUBMITTED THAT ONLY WHEN THE INCOME OF THE AGENT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT, THEN ONLY THE ASSE SSEE IS LIABLE TO ITA NO.2029/MDS/2017 5 DEDUCT TDS AS PER SEC. 195C OF THE I.T. ACT. THE PE RSON PAYING THE COMMISSION TO A NON-RESIDENT IS NOT LIABLE TO DEDUC T TAX IF SUCH SERVICES ARE NOT CHARGEABLE TO TAX UNDER THE ACT. S EC. 195 CONTEMPLATES NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS; IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAVE AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THE OBLIGATION TO DEDUCT TAX AT SOURCE, IS HOWEVER, LIMITED TO APP ROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON-RESIDENT. 4.2 THE LD. AR FURTHER SUBMITTED THAT INCOME THOUGH ACCRUED IN INDIA, THE SERVICES WERE RENDERED TO THE ASSESSEE A BROAD AND THE PAYMENTS WERE ALSO RECEIVED BY THEM ABROAD, THEREFO RE, NO INCOME WOULD ARISE UNDER THE PROVISIONS OF SEC. 9(1) OF TH E ACT. 5. THE LD. DR SUBMITTED THAT THE SELLING AGENT IN THIS CASE THOUGH HAD RENDERED SERVICES ABROAD, WAS ENTITLED TO RECEI VE THE COMMISSION FOR THE SERVICES RENDERED TO THE ASSESSE E AND RECEIVED THE AMOUNT THROUGH OR FROM BUSINESS CONNECTION WHIC H IT HAD IN INDIA AND SOURCE OF INCOME IS IN INDIA. BEING SO, THE INC OME SHALL BE ITA NO.2029/MDS/2017 6 DEEMED TO ACCRUE OR ARISE IN INDIA. SINCE THE SOURC E OF INCOME OF THE NON-RESIDENT, WHO IS THE AGENT OF THE ASSESSEE, IT EARNED COMMISSION FROM THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE ASSESSEE HAS NOT DEDUCTED TDS, IT SHOULD BE DISALLOWED U/S. 40(A)(I) OF THE I.T. ACT. THE SERVICES RENDERED BY THE AGENT FALLS WITHIN THE AMBIT OF EXPLANATION (2) OF SEC. 5 OF THE I.T. ACT. THE FACT THAT THE AGENT HAS RENDERED SERVICES ABROAD IN THE FORM OF SOLICITING ORDERS AND THE COMMISSION IS TO BE REMITTED TO THEM ABROAD IS WHOL LY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE SITUS OF THEIR INCOM E. ACCORDING TO THE LD. DR, NON-DEDUCTION OF TDS TOWARDS THIS INCOME IS TO BE DISALLOWED. 6. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. AT THE OUTSET, CERTAIN PROVISIONS OF THE A CT NEEDS TO BE LOOKED INTO SECTION 40(A)(I) WHICH READS AS UNDER: '40 NOT WITHSTANDING (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938) ROYALTY, FEES FO R TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYAB LE ITA NO.2029/MDS/2017 7 A. OUTSIDE INDIA B. IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER VIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTIO N 200:' 7. THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE DI SALLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGEABLE UNDER THIS ACT AND IS PAYABLE OUTSIDE INDIA OR IN I NDIA TO A NON- RESIDENT NOT BEING A COMPANY OR TO A FOREIGN COMPAN Y ON WHICH TAX IS DEDUCTIBLE AT SOURCE. THEREFORE, THE FIRST C ONDITION REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE U NDER THE ACT, THEREAFTER THE QUESTION OF DEDUCTION OF TAX WILL AR ISE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE D EDUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE CONDITION PRE CEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE U NDER THE PROVISIONS OF THE ACT. ITA NO.2029/MDS/2017 8 8. AS SEEN FROM THE ORDERS OF THE LOWER AUTHORITIE S, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDENT AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDENTS, WHO HAVE NO PER MANENT ESTABLISHMENT IN INDIA OR HAVE ANY BUSINESS CONNECT ION IN INDIA, BY VIRTUE OF WHICH THE PAYMENT OF COMMISSION ACCRUE D OR AROSE IN INDIA THEN, IT IS EXEMPTED, IF THE ASSESSEE IS ABLE TO PROVE THAT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS AT AB ROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDENT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINESS CONNECTION IN INDIA BY PRODUCI NG RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN THE PARTIES. WI THOUT EXAMINING THESE DETAILS, WE ARE NOT IN A POSITION T O DECIDE THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGE NT. THEREFORE, IT IS APPROPRIATE TO REMIT THE ENTIRE ISSUE BACK TO THE FILE OF THE AO WITH DIRECTION TO THE ASSESSEE TO PROVE THAT IT WAS SALES COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROA D. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTED BACK TO T HE FILE OF THE AO ITA NO.2029/MDS/2017 9 FOR FRESH CONSIDERATION AND THE AO IS DIRECTED TO M AKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED B Y THE NON- RESIDENT AGENT AND THE PAYMENTS MADE THEREOF. WITH THESE OBSERVATIONS, THE APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 09 TH NOVEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 09 TH NOVEMBER, 2017 . K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF