M/s. Buhler (India) Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 2167/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7231 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Deemed to accrue or arise in india; Permanent establishment; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE S HRI SUNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI JASON P BOAZ , ACCOUNTANT MEMBER I.T . A. NO. 2167 /BANG/20 16 (ASSESSMENT YEAR : 20 10 - 11 ) M/S. BUHLER (INDIA) PRIVATE LIMITED, 13 - D, 12 - D , 13 - C AND 13 - B, KIADB, INDL. AREA, ATTIBELE, BANGALORE - 562 107 . . APPELLANT. VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2), BANGALORE. .. RESPONDENT. APPELLANT BY : SHRI CHAVALI NARAYAN, C.A. R E SPONDENT BY : SHRI B. R. RAMESH, JCIT (D.R). DATE OF H EARING : 06.11.2017. DATE OF P RONOUNCEMENT : 17 .11 .201 7 . O R D E R PER SHRI JASON P BOAZ, A .M . : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , BANGALORE DT.16.09.2016 FOR THE ASSESSMENT YEAR 20 10 - 11. 2. BRIEFLY STAT ED, FACTS RELEVANT FOR DISPOSAL OF THIS APPEAL ARE AS UNDER : - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE MANUFACTURE, TRADING, SERVICING AND MAINTENANCE OF FOOD PROCESSING MACHINES, FILED ITS RETURN 2 IT A NO. 2167 /BANG/201 6 OF INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ON 14.10 .2010 DECLARING TOTAL INCOME OF RS.28,83,00,988. ON 28.3.2012, THE ASSESSEE FILED A REVISED RETURN DECLARING INCOME OF RS.28,15,14,861. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THE CASE WAS SUBSEQ UENTLY TAKEN UP FOR SCRUTINY. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD MADE PAYMENT OF RS.23,04,348 TO M/S. AMEEJEE VAL LEE JEE & SONS PVT. LTD (IN SHORT A V & SONS ), A FOREIGN COMPANY , TOWARDS COMMISSION FOR SERVICES IT RENDERED THE ASSESSEE IN P AKISTAN FOR (A) MARKETING THE ASSESSEE'S PRODUCTS IN PAKISTAN AND (B) PROCURING ORDERS FROM PROSPECTIVE CUSTOMERS IN PAKISTAN. THE ASSESSING OFFICER DISALLOWED THE AFORESAID COMMISSION PAYMENT AMOUNTING TO RS.23,04,348 TO A V & SONS UNDER SECTION 40(A) (I) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE THEREON. THE ASSESSMENT WAS CONCLUDED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DT.3.3.2014, WHEREIN THE ASSESSEE'S INCOME WAS DETERMINED AT RS.28,38,19,248; WHICH INCLUDED THE DISALLOWANCE OF COMMISSION PAYMENT OF RS.23,04,348 TO THE NON - RESIDENT ENTITY A V & SONS . 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2010 - 11 DT.3.3.2014, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS). THE APPEAL WAS DISMISSED BY LEARNED CIT ( APPEALS) VIDE ORDER DT.16.9.2016 ; HOLDING THAT THE PAYMENT OF COMMISSION TO NON - RESIDENT IS TAXABLE IN INDIA IN VIEW OF THE PROVISIONS OF SEC. 9(1)( I ) OF THE ACT. 3.1 THE ASSESSEE, BEING AGGRIEVED BY THE ORDER OF CIT (APPEALS) DT.16.9.2016 FOR ASSESSM ENT YEAR 2010 - 11, HAS FILED THIS APPEAL BEFORE THE TRIBUNAL, WHEREIN IT HAS RAISED THE FOLLOWING GROUNDS : - 3 IT A NO. 2167 /BANG/201 6 3.2 THE LEARNED AUTHORISED REPRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUNDS (RAISED). IT WAS SUBMITTED THAT THE SAID COMMISSION PAYMEN TS ARE TOWARDS AGENCY SERVICES RENDERED BY AV & SONS WHICH INVOLVED (I) MARKETING THE ASSESSEE'S PRODUCTS IN PAKISTAN AND (II) 4 IT A NO. 2167 /BANG/201 6 PROCURING ORDERS FROM PROSPECTIVE CUSTOMERS IN PAKISTAN. AC C ORDING TO THE LEARNED AUTHORISED REPRESENTATIVE, SINCE THE ACTIVIT Y OF AGENCY SERVICES BY A V & SONS WE RE RENDERED BY A V &SONS IN TH E TERRITORY OF PAKISTAN AND PAYMENTS WERE MADE OUTSIDE INDIA, THEREFORE THE SAID COMMISSION PAYMENTS TO A V & SONS CANNOT BE SAID TO BE TAXABLE IN INDIA. IT IS CONTENDED THAT SINCE NO INCOME ACCRUES OR ARISES IN INDIA OR IS DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF SECTION 5 R.W.S. 9(1)(I) OF THE ACT, THE AFORESAID COMMISSION PAYMENTS TO A V & SONS IS NOT SUBJECT TO THE PROVISIONS FOR WITHHOLDING TAX THEREON. IN SUPPORT OF THE ASSESSEE'S CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL : - I) EXOTIC FRUITS (P.) LTD. VS. ITO (I.T) (2013) 40 TAXMANN.COM 348 (BANGALORE TRIB.) II) PUMA SPORTS INDIA PVT. LTD. VS. DCIT IN IT(TP)A NO.1611/BANG/2017 DT.28.9.2017. 3.3 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE PLACED STR ONG R E L IANC E ON THE ORDERS OF THE AUTHORITIES BELOW. ACCORDING TO THE LEARNED DEPARTMENTAL RE PRESENTATIVE, THE WITHDRAWAL OF EARLIER CIRCULAR NOS.23 OF 1969 AND 7 OF 2009 DT.22.10.2009 CLEARLY MEANS THAT THE PAYMENT OF COMMISSION TO NON - RESIDENTS IS TAXABLE IN INDIA IN TERMS OF PROVISIONS OF SECTION 9(1)(I) OF THE ACT. 3.4 IN REJOINDER TO THE LEARNED DEPARTMENTAL REPRESENTATIVE S CONTENTIONS, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE WITHDRAWAL OF THE CIRCULAR 23 OF 1969 DOES NOT NECESSARILY MEAN THAT A 5 IT A NO. 2167 /BANG/201 6 NON - RESIDENT WOULD BE NOW BE LIABLE TO TAX IN INDIA AUTOMATICALLY. THE TAXA BILITY OF A NON - RESIDENT UNDER THE ACT WOULD NEED TO BE EVALUATED, INDEPENDENT OF THE POSITION STATED IN THE CIRCULARS, HAVING REGARD TO THE PROVISIONS OF THE ACT AND THE RELEVANT JUDICIAL PRONOUNCEMENTS. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF EXOTIC FRUITS PVT. LTD. (SUPRA) WHEREIN AT PARA 7.5 THEREOF IT HAS BEEN HELD THAT EVEN AFTER THE WITHDRAWAL OF CIRCULAR NO.23 OF 1969, THE POSITION WILL REMAIN THE SAME. IN VIEW OF THE AFORESAID SUBMISSIONS AND LEGAL POSITION IN THE MATTER, IT WAS PRAYED THAT THE ORDERS OF THE ASSESSING OFFICER BEING UNTENABLE OUGHT TO BE REVERSED AND THE ASSESSEE'S APPEAL BE ALLOWED. 3.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED / RELIED ON. THE BASIC FACTS NOT DISPUTED BY AUTHORITIES BELOW ARE THAT THE ASSESSEE IN THE CASE ON HAND , IN THE YEAR UNDER CONSIDERATION , HAD MADE PAYMENTS AMOUNTING TO RS.23,04,348 TO A V & SONS A NON - RESIDENT COMPANY TOWARDS COMMISSION FOR SERVICES IT RENDERED THE ASSESSEE IN PAKISTAN FOR (A) MARKETING THE ASSESSEE'S PRODUCTS IN PAKISTAN AND (B) PROCURING ORDERS FROM PROSPECTIVE CUSTOMERS IN PAKISTAN AND HAD NOT DEDUCTED TAX AT SOUR CE THEREON. WE FIND THAT THE FACTS OF THE CASE ON HAND AND THE ISSUES CONSIDERED ARE SIMILAR TO THOSE THAT WERE BEFORE THE CO - ORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF EXOTIC FRUITS (P) LTD (SUPRA); AND THAT OF PUMA SPORTS INDIA PVT. LTD. (SUPRA). IN THE CASE OF EXOTIC FRUITS (P) LTD. (SUPRA), 6 IT A NO. 2167 /BANG/201 6 THE CO - ORDINATE BENCH AFTER DETAILED CONSIDERATION OF THE MATTER FROM PARA S 7 TO 7.6 THEREOF, HELD AS UNDER AT PARA 7.7 OF ITS ORDER : 7.7 TO ILLUSTRATE, THE INCOME OF THE NON - RESIDENT(S) BY WAY OF COM MISSION IN THE PRESENT CASE CANNOT BE CONSIDERED AS ACCRUED OR ARISEN OR DEEMED TO ACCRUE OR ARISE IN INDIA AS THE SERVICES OF SUCH AGENTS, AS ASSERTED BY THE ASSESSEE, WERE RENDERED / UTILISED OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID OUTSIDE INDIA. FURTHER, IN THE ABSENCE OF PERMANENT ESTABLISHMENT(S) OF SUCH AGENTS IN INDIA, THE INCOMES OF THE SAID AGENTS WERE NOT LIABLE TO BE TAXED IN INDIA AND, AS SUCH, THE ASSESSEE WAS NOT OBLIGED TO EFFECT ANY DEDUCTION OF TAX ON THE COMMISSION PAYMENTS MADE TO THE AGENTS WHO WERE POSITIONED OVERSEAS. 3. 5.2 IN THE CASE OF PUMA SPORTS INDIA PVT. LTD. (SUPRA), THE CO - ORDINAT E BENCH OF THIS TRIBUNAL, ON SIMILAR FACTS AS IN THE CASE ON HAND, FOLLOWING THE AFORESAID DECISION OF ANOTHER CO - ORDINATE BENCH IN TH E CASE OF EXOTIC FRUITS (P) LTD. (SUPRA), AT PARA 7 OF ITS ORDER HELD THAT THE INCOME OF NON - RESIDENTS BY WAY OF COMMISSION CANNOT BE CONSIDERED AS ACCRUED OR ARISEN OR DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA AS THE SERVICES OF SUCH AGENTS WERE RENDER ED / UTILIZED OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID OUTSIDE INDIA. THE RELEVANT PORTION OF THIS ORDER AT PARA 7 THEREOF IS EXTRACTED HEREUNDER : 7. IN RESPECT OF TDS REQUIREMENT AND APPLICABILITY OF SECTION 40A(I), WE CONSIDER THE APPLICABIL ITY OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S EXOTIC FRUITS PVT. LTD. VS. ITO (SUPRA). THE ASSESSMENT YEARS INVOLVED IN THAT CASE WERE 2008 09 TO 2010 11. IN PARA 7.7 OF THAT TRIBUNAL ORDER, IT WAS NOTED THAT THE INCOME OF NON RESIDENTS BY WAY OF COMMISSION CANNOT BE CONSIDERED AS ACCRUED OR ARISEN OR DEEMED TO ACCRUE OR ARISE IN INDIA AS THE SERVICES OF SUCH AGENTS WERE RENDERED/UTILIZED OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID OUTSIDE INDIA. IN THE PRESENT CASE 7 IT A NO. 2167 /BANG/201 6 ALSO, IN PARA 4.7, IT IS N OTED BY DRP THAT NO DOUBT, THE AE RENDERED SERVICES ABROAD AND ALSO NOTED THAT THE AE RENDERED SERVICES ABROAD IN THE FORM OF PLACING THE ORDERS WITH MANUFACTURERS AND THE COMMISSION TO AE IS TO REMITTED TO THEM ABROAD. HENCE, THE FACTS ARE NOT DIFFERENT. THE DRP PROCEEDED ON THIS BASIS THAT THE SITUS IS IN INDIA BECAUSE THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA WHEN THE ASSESSEE RECEIVES THE IMPORTED GOODS. IN OUR OPINION, THE COMMISSION MAY BECOME PAYABLE AFTER RECEIPT OF GOODS BUT IT ACCRUES WH EN THE SERVICES ARE RENDERED IN THE FORM OF PLACING THE ORDERS WITH MANUFACTURERS. THEREFORE, RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE HOLD THAT TDS IS NOT DEDUCTIBLE FROM COMMISSION PAYMENT TO FOREIGN AGENT. REGARDING THE EXPLANATION INSERTED BY FIN ANCE ACT, 2010 W.R.E.F. 01.06.1976 BELOW SECTION 9 (2), WE WOULD LIKE TO OBSERVE THAT THIS TRIBUNAL ORDER IS DATED 04.10.2012 I.E. AFTER INSERTION OF THIS EXPLANATION AND THEREFORE, IT CANNOT BE SAID THAT THERE IS ANY CHANGE IN LAW AFTER THIS TRIBUNAL ORDE R. 3.5.3 RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASES OF EXOTIC FRUITS (P) LTD (SUPRA); AND PUMA SPORTS INDIA PVT. LTD. (SUPRA); WE ALSO HOLD THAT THE INCOME OF THE NON - RESIDENT, A V & SONS BY WAY OF PAYMENT OF COMMISSION IN THE CASE ON HAND CANNOT BE CONSIDERED AS BEING ACCRUED OR ARISEN OR DEEMED TO ACCRUE OR ARISE IN INDIA AS THE SERVICES WERE RENDERED OUTSIDE INDIA AND THE COMMISSION WAS ALSO PAID OUTSIDE INDIA. WE ALSO HOLD THAT IN THE ABSENCE OF PERMANENT ESTABLISHMENT OF A V & SONS IN INDIA, THE INCOME OF THE SAID AGENT IS NOT EXIGIBLE TO TAX IN INDIA. T HEREFORE , THE ASSESSEE 8 IT A NO. 2167 /BANG/201 6 WAS NOT OBLIGED TO EFFECT ANY DEDUCTION OF TAX ON THE COMMISSION PAYMENT TO THE AGENT A V & SONS , WHO IS STATIONED OUTSIDE INDIA. WE, THEREFOR E, REVERSE THE FINDINGS OF THE AUTHORITIES BELOW IN THIS REGARD AND ALLOW THE GROUNDS RAISED IN THE APPEAL BY THE ASSESSEE. 4. IN THE RESULT, THE ASSESSEE'S APPEAL FOR ASSESSMENT YEAR 2010 - 11 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N THE 17TH DAY OF NOV., 201 7 . SD/ - ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER SD/ - ( JASON P BOAZ ) JUDICIAL MEMBER BANGALORE, DT. 17 . 11.2017. *REDDY GP COPY TO : 1 APPELLANT 4 CIT(A) 2 RESPONDENT 5 DR. ITAT, BANGALORE 3 CIT 6 GUARD FILE SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL BANGALORE.