ACIT, CHENNAI V. M/s. T.Abdul Wahid Tanneries Pvt. Ltd., CHENNAI

ITA 2123/CHNY/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6243 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: G BASKAR
• Keywords: Deemed to accrue or arise in india; Permanent establishment
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . . !' , # '$ % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.2123/MDS/2013 ( / ASSESSMENT YEAR : 2009-2010) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI 600 034. ( &' /APPELLANT) VS M/S. T. ABDUL WAHID TANNERIES PVT. LIMITED, NO.27/55, MASHUK VEPERY HIGH ROAD, PERIAMET, CHENNAI 600 003. [PAN: AAACT 1168K] ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. S. DAS GUPTA, JCIT / RESPONDENT BY : SHRI. G. BASKAR, ADVOCATE /DATE OF HEARING : 02.06.2014 ! /DATE OF PRONOUNCEMENT : 02.06.2014 '* / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2009-1 0; EMANATES FROM ORDER DATED 23.09.2013 PASSED BY THE COMMISSIONER OF I.T.A.NO.2123/MDS/2013. :- 2 -: INCOME TAX (APPEALS)-III, CHENNAI IN ITA NO.1413/20 13-14 IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT]. 2. THE REVENUES SOLE SUBSTANTIVE GROUND CHALLENGES ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING DI SALLOWANCE UNDER SECTION 40(A)(I) FOR NON DEDUCTION OF TDS MADE BY T HE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 19.12.2011. 3. THE ASSESSEE; A COMPANY, IS ENGAGED IN THE BU SINESS OF TANNING AND EXPORT OF FINISHED LEATHER. ON 30.09.2009, IT HAD FILED ITS RETURN DISCLOSING INCOME OF I.28,49,350/-. THE SAME WAS SUMMARILY PROCESSED. 4. IN SCRUTINY, THE ASSESSING OFFICER NOTICED FR OM ASSESSEES PROFIT AND LOSS ACCOUNT COMMISSION PAYMENTS OF I.1, 11,35,441/- MADE TO ITS OVERSEAS AGENTS SITUATED IN VARIOUS COUNTRIE S LIKE AUSTRALIA, ITALY, PORTUGUAL, S. KOREA ETC. WITHOUT DEDUCTING ANY TDS . THE ASSESSEE HAD CLASSIFIED THE SAID PAYMENTS AS SALES AND DIST RIBUTION EXPENSES. IT HAD ALSO PRODUCED ITS COMMISSION PAYMENT AGREEMENTS EXECUTED THE SAID AGENTS. IT TRANSPIRED THEREFROM THAT THE PAYE E AGENTS WERE RESPONSIBLE FOR PROCURING FINISHED LEATHER EXPORT ( RETAIL AND TRADE) I.T.A.NO.2123/MDS/2013. :- 3 -: ORDERS IN THEIR RESPECTIVE AREAS, THEY WOULD RECOMM END FINANCIAL STABILITY OF THE OVERSEAS BUYERS, OPEN OF LETTER OF CREDIT, ENSURE PROMPT PAYMENT IN RESPECT OF ALL SHIPMENTS, FURNISH UPTO D ATE INFORMATION ABOUT OVERSEAS FASHION AND MARKET TRENDS. IN LIEU THEREOF, THE ASSESSEE/EXPORTER HAD UNDERTAKEN TO REIMBURSE ITS O VERSEAS EXPORT AGENTS COMMISSION @ 2.5% ON FOB VALUE OF ALL ORDERS . 5. ON BEING GRANTED OPPORTUNITY, THE ASSESSE E HAD DRAWN DISTINCTION BETWEEN TWO METHODS OF COMMISSION PAYME NTS. FIRST ONE WAS THAT COMMISSION WAS DIRECTLY DEDUCTED BY THE OV ERSEAS BANK FROM THE EXPORT PROCEEDS AND PAID TO THE OVERSEAS AGENTS AS PER TERMS PROVIDED IN THE LETTERS OF CREDIT. THE SECOND MODE WAS THAT COMMISSION WAS DIRECTLY REMITTED IN FOREIGN CURREN CY THROUGH BANKS AS PER CONTRACTUAL TERMS. THE ASSESSEE CONTESTED A PPLICABILITY OF SEC.9 RWS SEC 195 AS THE PAYEES/AGENTS DID NOT HAVE ANY P ERMANENT ESTABLISHMENT IN INDIA WHICH WOULD WARRANT TDS DEDU CTION. IT HAD PLACED RELIANCE ON CIRCULAR NO.23 OF 1969 STIPULATI NG THAT COMMISSION PAID TO OVERSEAS AGENTS FOR PROCURING ORDERS DID NO T QUALIFY AS INCOME EARNED IN INDIA. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER REJECTED ASESSEES EXPLANATIONS. IN HIS VIEW, ITS AGENCY AGREEMENTS NOT ONLY INVOLVED EXPORT PROCUREM ENT ORDERS BUT I.T.A.NO.2123/MDS/2013. :- 4 -: ALSO RENDERING OF SPECIALIZED TECHNICAL SERVICES IN THE NATURE OF FURNISHING CHANGES IN FASHION & MARKET TRENDS IN OV ERSEAS MARKETS. THEREAFTER, HE QUOTED DEFINITION OF FEES FOR TECHNI CAL SERVICES IN VARIOUS DOUBLE TAXATION AVOIDANCE AGREEMENTS AS WELL AS SEC . 9(I)(VII)(B) TO OBSERVE THAT BOTH INCOME AS WELL AS EARNING ACTIVIT Y WERE SITUATED INSIDE INDIA WHICH PROVED DIRECT NEXUS BETWEEN PAYM ENTS AND THE INCOME EARNED. IN THESE CIRCUMSTANCES, HE HELD THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS WHILE MAKING IMPUGNED EXPORT COMM ISSION PAYMENT AND FAILURE THEREOF ATTRACTED DISALLOWANCE UNDER SECTION 40(A)(I). THUS, HE ADDED THIS SUM OF I.1,11,35,441 /- IN ASSESSEE S INCOME. 6. THE ASSESSEE PREFERRED AN APPEAL. THE CIT( A) HAS FIRSTLY OBSERVED IN VIEW OF CASE LAW GE INDIA TECHNOLOGY CE NTRE PVT LTD V/S. CIT (2010) 327 ITR 456(SC) THAT IF THE RECIPIENT /P AYEE IS NOT LIABLE TO BE TAXED IN RESPECT OF ITS COMMISSION PAYMENT, NO S UCH DISALLOWANCE FOR NON DEDUCTION OF TDS ARISES. THEN, HE HOLDS TH AT THE AGENTS HAD BEEN PROCURING EXPORT ORDERS AND FOLLOWING UP PAYME NTS. IN CIT(A)S VIEW THIS DOES NOT AMOUNT TO RENDERING OF ANY TECHN ICAL SERVICES U/S. SEC.9(I)(VII)(B). ACCORDINGLY, THE DISALLOWANCE IN QUESTION STANDS DELETED. I.T.A.NO.2123/MDS/2013. :- 5 -: THIS LEAVES THE REVENUE AGGRIEVED. 7. WE HAVE HEARD BOTH SIDES AND PERUSED THE CA SE FILE. THE REVENUE VEHEMENTLY ARGUES THAT THE ASSESSEE HAD AVA ILED TECHNICAL SERVICES FOR PROCURING EXPORTS ORDERS AS WELL AS IN GETTING UPDATE ON FASHION AND MARKET TRENDS. OPPOSING THIS, THE ASS ESSEE SUBMITS THAT IT HAD NOT AVAILED ANY TECHNICAL SERVICES FROM THE OVERSEAS AGENTS WHO DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA T O ATTRACT DEEMED INCOME CONCEPTS. WE MAKE IT CLEAR THAT NO EVIDENCE HAS BEEN PLACED ON RECORD TO ALLEGE ANY MISREADING OF EVIDENCE BY T HE CIT(A). IT TRANSPIRES TO US THAT ASSESSEES OVERSEAS AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE ASSESSEE AND ITS AGENTS HAD EXECUTED AGREEMENTS FOR PROCURING EXPORT ORDERS AND FURNISHING OF UPTO DATE INFORMATION ABOUT FASHION AND MARKET TREN DS. IN CONSEQUENCE THEREOF, SERVICES HAVE BEEN RENDERED OU TSIDE INDIA. THE REIMBURSEMENTS IN THE NATURE OF EXPORT COMMISSION H AVE ALSO BEEN PAID OVERSEAS. IN OTHER WORDS, NEITHER ANY SERVICE S NOR PAYMENT HAVE TAKEN PLACE IN INDIAN TERRITORY. COUPLED WITH THIS, NO EVIDENCE PROVING THAT THE AGENTS HAD PROVIDED OR MADE AVAILA BLE ANY TECHNICAL SERVICES HAS BEEN FILED. SO, THE REVENUES MERE PL EA THAT THIS ASSESSEES OBLIGATION OF EXPORT COMMISSION ATTRACTS 9 RWS 195 DOES NOT I.T.A.NO.2123/MDS/2013. :- 6 -: DESERVE ACCEPTANCE. IN OBSERVING SO, WE DRAW SUPPO RT FROM ITAT CHENNAIS DECISIONS IN M/S.T. ABDUL WAHID COMPANY IN ITA NO. 84/MDS/2014 AND M/S. FARIDA LEATHER COMPANY IN ITA NO. 85/MDS/2014 ON IDENTICAL ISSUE RAISED BY THE REVENU E. THUS, WE AGREE WITH FINDINGS OF THE CIT(A) AND REJECT THE REVENUES GROUNDS. 8. IN RESULT, THIS REVENUES APPEAL IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE T IME OF HEARING ON MONDAY, THE 2 ND OF JUNE, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( . . !' ) # '$ (DR. O.K. NARAYANAN) VICE PRESIDENT (S.S. GODARA) JUDICIAL MEMBER DATED:2 ND JUNE, 2014. K.V '# $% &% /COPY TO: 1. ' APPELLANT 2. / RESPONDENT 3. ( ( )/CIT(A) 4. ( /CIT 5. %)* + /DR 6. *, - /GF. I.T.A.NO.2123/MDS/2013. :- 7 -: