Gokul Refoils & Solvent Ltd., Ahmedabad V. The DCIT Inta.Taxa-1, Ahmedabad

ITA 2049/AHD/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6165 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 01-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Permanent establishment; Non-deduction of tax; TDS
• Section: 194C; 201(1); 195; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL ME MBER GOKUL REFOILS & SOLVENT LTD. GOKUL HOUSE, 43, SHREEMALI CO-OP HOUSING SOCIETY LTD. OPP. SHIKHAR BUILDING, NAVRANGPURA, AHMEDABAD-9 PAN: AAACG8316N (APPELLANT) VS THE DY. CIT, INTERNATIONAL TAXATION- 205, 2 ND FLOOR NAVJEEVAN TRUST BUILDING, B/H GUJARAT VIDYAPITH, ASHRAM ROAD, AHMEDABAD- 380014 (RESPONDENT) REVENUE BY: SHRI VINOD TANWANI, SR. D.R. ASSESSEE BY: SHRI T.P. HEMANI, SR. A.R. & SHRI PARIMAL PA RMAR A.R. DATE OF HEARING : 23-07-2020 DATE OF PRONOUNCEMENT : 11-09-2020 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS ASSESSEES APPEAL FOR A.Y. 2016-17, ARISES FRO M ORDER OF THE CIT(A)- 13, AHMEDABAD DATED 12-07-2018, IN PROCEEDINGS UND ER SECTION 201 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- ITA NO. 2049/AHD/2018 ASSESSMENT YEAR 2016-17 I.T.A NO. 2049/AHD/2018 A.Y. 2016-17 PAGE NO GOKUL REFOILS & SOLVENT LTD. VS. DY. CIT, INTERNATI ONAL TAXATION 2 1. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AND O N THE FACTS OF THE CASE IN CONFIRMING AO'S ACT OF HOLDING THAT THE APPELLANT IS REQUIRED TO PAY RS.2, 32,319/- BEING AGGREGATE OF SUM DEDUCTIBLE U/S 195 R.W.S. 201(1) ALONGWITH INTEREST U/S 201 (1A) OF THE ACT. 2. THE LEARNED CIT(A) HAS ERRED BOTH IN LAW AN D ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF AO OF HOLDING THAT S.195 OF THE ACT IS APPLICABLE TO THE FOREIGN REMITTANCE OF RS.56,70,000/- MADE TOWARDS DEMURRAGE CHARGES. 3. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIA TE THAT THE REMITTANCE IS NOT AT ALL CHARGEABLE TO TAX IN INDIA AND THEREFORE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE. ACCORDINGLY, THERE WAS NO QUESTION OF I NVOKING PROVISIONS OF 8.201(1) AND S. 201(1A) OF THE ACT. 4. THE LEARNED C1T(A) HAS CONSEQUENTLY ERRED B OTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMI NG AO'S STAND THAT THE APPELLANT WAS REQUIRED TO WITHHOLD T AX WHILE MAKING THE AFORESAID REMITTANCE. 5. THE LEARNED CIT(A) HAS ACCORDINGLY ERRED BO TH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMIN G THE ACTION OF AO IN TREATING THE APPELLANT AS ASSESSEE- IN-DEFAULT U/S 201(1) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 3. THE SOLITARY ISSUE IN THE GROUNDS OF APPEAL FILE D BY THE ASSESSEE AGAINST THE DECISION OF LD. CIT(A) IN CONFIRMING THE ASSESSING OFFICERS ACT ON HOLDING THAT THE ASSESSEE IS REQUIRED TO PAY OF RS. 2,32,319/- BEING AGGREGATE ON SUM DEDUCTIBLE U/S. 195 R.W.S. 201(1) ALONG WITH INTEREST U/S. 201 (1A) OF THE ACT. 4. THE FACT IN BRIEF IS THAT THE CASE OF THE ASSESS EE WAS SELECTED FOR VERIFICATION OF FOREIGN REMITTANCE MADE BY THE ASSESSEE DURING T HE F.Y. 2015-16 PERTAINING TO FOREIGN REMITTANCE OF RS. 56,70,000/- TOWARDS DEMUR RAGE CHARGES PAID BY THE ASSESSEE TO THE NON-RESIDENT WILMAR TRADING PVT. LT D., SINGAPORE. THE AO WAS OF THE VIEW THAT THE AFORESAID PAYMENT MADE BY THE ASS ESSEE TO NON-RESIDENT WAS LIABLE FOR TAX UNDER THE PROVISION OF SECTION 195 O F THE ACT. THE ASSESSEE HAD EXPLAINED THAT THE PAYMENT OF RS. 56,70,000/- WAS M ADE TO WILMAR TRADING PVT. LTD AND SUBMITTED COPY OF INVOICE RECEIVED FROM WI LMAR TRADING PVT. LTD, COPY OF DECLARATION REGARDING PERMANENT ESTABLISHMENT GI VEN BY THE WILMAR TRADING PVT. LTD AND INFORMATION ON FORM NO. 15CA/15CB. TH E ASSESSEE HAS STATED THAT PROVISION OF SECTION 201(1) AND SECTION 201(1A) R.W .S. 195 OF THE ACT ARE NOT APPLICABLE IN RESPECT OF PAYMENT OF DEMURRAGE CHARG ES TO WILMAR TRADING PVT. LTD AS THE SAME WAS THE REIMBURSEMENT OF EXPENSES TO TH E SUPPLIER OF THE GOODS. THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE VARIOUS JU DICIAL PRONOUNCEMENTS ELABORATED IN THE ORDER OF THE AO AT PAGE NO. 3 AND 4 OF THE ASSESSMENT ORDER. THE I.T.A NO. 2049/AHD/2018 A.Y. 2016-17 PAGE NO GOKUL REFOILS & SOLVENT LTD. VS. DY. CIT, INTERNATI ONAL TAXATION 3 ASSESSEE HAS ALSO SUBMITTED THAT VIDE CIRCULAR NO. 723 DATED 19 TH SEP, 1995, CBDT HAS SPECIFICALLY CLARIFIED THAT PROVISION OF SECTIO N 195 ARE NOT APPLICABLE TO PAYMENT MADE BY RESIDENT TO NON-RESIDENT OF SHIPPIN G LINE OR ANY OTHER PERSON AND THE PROVISIONS OF SECTION 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE. THE AO HAS NOT AGREED WITH THE SUBMISS ION OF THE ASSESSEE STATING THAT ASSESSEE HAS NOT PRODUCED THE SUPPORTING DOCUMENTS INDICATING THAT THE PAYMENT HAS BEEN OFFERED TO TAX U/S. 172 OF THE ACT BY THE SHIPPING COMPANY, THEREFORE, THE ASSESSEE WAS TREATED TO BE IN DEFAULT FOR NON-DEDUC TION OF TDS U/S. 195 OF THE ACT ON THE SAID PAYMENT. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A)(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE HOL DING THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AS PER PROVISIONS OF SECTION 195 OF THE ACT, THEREFORE, THE AO WAS JUSTIFIED IN TREATING THE ASSESSEE AS ASSESS EE IN DEFAULT U/S. 201 OF THE ACT. 6. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL HAS SUBMITTED PAPER BOOK COMPRISING COPIES OF DOCUMENTS AND DETAI LED INFORMATION FURNISHED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL HAS CONTENDED THAT AS LONG AS THE SHIP IS OWNED OR CHARTERED BY A NON-RESIDENT, PROVISIONS OF SECTION 172 WILL BE APPLICABLE AND HENCE PROVISIONS OF SECTION 195 OF T HE ACT CANNOT BE INVOKED. THE ASSESSEE HAS MADE REIMBURSEMENT OF DEMURRAGE CHARGE S TO WILMAR TRADING PVT. LTD ULTIMATE BENEFICIARY OF SUCH DEMURRAGE CHARGES. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF DEEPAK FERTILIZE R AND PETRO-CHEMICAL LTD. (2019) 112 TAXMAN.COM 315 (MUMBAI TRIB). THE LD. C OUNSEL HAS PLACED RELIANCE ON THE DECISION OF CIT VS. VS DEMPO AND COMPANY PVT . 381 ITR 303 (BOM) AND ALSO OF THE DECISION OF AHMEDABAD TRIBUNAL IN THE C ASE OF STEELCO GUJARAT LTD. VS. ACIT (2018) 92 TAXMAN.COM 27. THE LD. COUNSEL HAS FURTHER SUBMITTED THAT THE PAYMENT WAS REIMBURSEMENT OF DEMURRAGE CHARGES ON W HICH NO TAX IS REQUIRED TO I.T.A NO. 2049/AHD/2018 A.Y. 2016-17 PAGE NO GOKUL REFOILS & SOLVENT LTD. VS. DY. CIT, INTERNATI ONAL TAXATION 4 BE DEDUCTED AND PLACED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GUJARAT NARMADA VALLEY FERTILIZ ER COMPANY LTD. TAX APPEAL NO. 315 OF 2013. ON THE OTHER HAND, LD. D.R. HAS S UPPORTED THE ORDER OF LOWER AUTHORITIES. 7. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE DEMURRAGE CHARGE WAS MADE TO THE WILMAR TRADING PVT. LTD AS R EIMBURSEMENT OF THE EXPENSES MADE BY IT ON BEHALF OF THE ASSESSEE TO SH IPPING COMPANY. THE ASSESSEE HAS PLACED RELIANCE ON THE CBDT CIRCULAR NO. 723 DA TED 19 TH SEP, 1995 AND SUBMITTED THAT THERE WAS NO OBLIGATION UPON THE ASS ESSEE TO DEDUCT TAXES AT SOURCE U/S. 195 IN RESPECT OF DEMURRAGE CHARGES PAID TO T HE NON-RESIDENT SHIPPING COMPANY AS SUCH INCOME WAS LIABLE TO BE BROUGHT UND ER TAX U/S. 172 OF THE ACT. ON PERUSAL OF THE MATERIAL ON RECORD, WE FIND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE REIMBURSEMENT OF RS. 56,70,000/- TO WILMAR TRADING PVT. LTD IN RESPECT OF DEMURRAGE CHARGES PA ID TO SHIPPING COMPANY ON BEHALF OF THE ASSESSEE. DURING THE COURSE OF ASSESS MENT, THE ASSESSEE HAS SUBMITTED ALL THE DOCUMENTARY EVIDENCES IN RELATION TO THE AF ORESAID REIMBURSEMENT EXPENSES I.E. DEMURRAGE CONTRACT, LETTER TO BANK FOR REMITTA NCE TO WILMAR TRADING PVT. LTD, DEBIT NOTE, AMOUNT OF REMITTANCE, DEBIT NOTE ISSUED BY THE WILMAR TRADING PVT. LTD., FORM NO. 15CA, FORM NO. 15CB, BANK STATEMENT VOUCHER, DETAIL OF REMITTANCE, FORM A2 UNDER FEMA AND CERTIFICATE FROM WILMAR TRADING PVT. LTD. THAT IT HAD NO PERMANENT ESTABLISHMENT IN INDIA. W E HAVE ALSO GONE THROUGH CIRCULAR NO. 723 DATED 19 TH SEP, 1995 OF THE CBDT WHEREIN IT IS CATEGORICALLY CLARIFIED THAT IF PAYMENTS ARE MADE TO VARIOUS SHIP PING COMPANIES WHO ARE NON- RESIDENT OR TO THE AGENTS OF NON-RESIDENT SHIPPING COMPANIES THEN PROVISION OF SECTION 194C AND 195 ARE NOT APPLICABLE WHICH ARE C OVERED BY SECTION 172 OF THE ACT. WE HAVE ALSO GONE THROUGH THE JUDICIAL PRONOU NCEMENTS OF MUMBAI ITAT IN THE CASE OF DEEPAK FERTILIZER AND PETRO-CHEMICAL CO RPORATION LTD. VS. PR. CIT(A) I.T.A NO. 2049/AHD/2018 A.Y. 2016-17 PAGE NO GOKUL REFOILS & SOLVENT LTD. VS. DY. CIT, INTERNATI ONAL TAXATION 5 (MUMBAI) (2019) 112 TAXMAN.COM 315 WHEREIN IT IS HE LD THAT THERE IS NO OBLIGATION CAST UPON ASSESSEE TO DEDUCT TAX AT SOUR CE U/S. 195 IN RESPECT OF DEMURRAGE CHARGES PAID TO A NON-RESIDENT SHIPPING C OMPANY AS SUCH INCOME WAS LIABLE TO BE BROUGHT TO TAX U/S. 44B AND SECTION 17 2 OF THE ACT. SIMILARLY, ITAT AHMEDABAD IN THE CASE OF STEELCO GUJARAT LTD. VS. A CIT, BARODA (2018) 92 TAXMAN.COM 27 HAS HELD THAT AS LONG AS SHIP IN RESP ECT OF WHICH FREIGHT PAYMENTS ARE MADE IS OWNED OR CHARTERED BY NON-RESIDENT OR E NTITY WHICH IS WHERE PROVISION OF SECTION 172 ARE APPLICABLE, PROVISION OF SECTION 195 OR 194C CANNOT BE INVOKED. IN THE LIGHT OF THE ABOVE FACTS, MATERIAL AND JUDIC IAL FINDINGS, WE CONSIDER THAT PROVISION OF SECTION 195 ARE NOT APPLICABLE TO THE REIMBURSEMENT OF DEMURRAGE CHARGES PAID TO THE NON-RESIDENT SHIPPING COMPANY O N BEHALF OF THE ASSESSEE BY WILMAR TRADING PVT. LTD. FURTHER, IT IS CLEARLY CL ARIFIED BY THE CBDT VIDE CIRCULAR NO. 723 DATED 19 TH SEP, 1995 THAT AS LONG AS THE SHIP IN RESPECT OF W HICH FREIGHT PAYMENT IS MADE IS OWNED OR CHARTERED BY NON-RESIDE NT THE PROVISION OF SECTION 172 ARE APPLICABLE AND THE PROVISION OF SECTION 195 OR 194C CANNOT BE INVOLVED. IN VIEW OF THE FACTS, FINDINGS, AND DISCUSSION, WE ARE NOT INCLINED WITH THE DECISION OF THE LD. CIT(A) AS PROVISION OF SECTION 195 OF WI THHOLDING OF TAX ON FREIGHT PAYMENT TO NON-RESIDENT SHIPPING COMPANIES IS NOT A PPLICABLE AS THE SAME ARE COVERED BY SECTION 172 OF THE ACT. THEREFORE, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11-09-2020 SD/- SD/- (MADHUMITA ROY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 11/09/2020 I.T.A NO. 2049/AHD/2018 A.Y. 2016-17 PAGE NO GOKUL REFOILS & SOLVENT LTD. VS. DY. CIT, INTERNATI ONAL TAXATION 6 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,