The ACIT, Circle-1(2), Vadodara V. M/s. Honest Enterprise Ltd., Vadodara

ITA 2265/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6064 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 31-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: MALLO BHATT
• Keywords: Recovery proceedings; Services rendered outside India; Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2265/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) THE ACIT CIRCLE-1(1)(2) BARODA / VS. M/S.HONEST ENTERPRISE LTD. 118, MEGHDOOT APARTMENTS NR.APSARA CINEMA PRATAPNAGAR VADODARA-390 004 $ ./ ./ PAN/GIR NO. : AAACH 7237 D ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI V.K. SINGH, SR.DR ($'*) / RESPONDENT BY : SHRI MALLO BHATT, AR +,*- / DATE OF HEARING 20/02/2018 ./0*- / DATE OF PRONOUNCEMENT 23 / 02 /2018 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTAN CE OF THE REVENUE AGAINST THE APPELLATE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, VADODARA [CIT(A) IN SHORT] DATED 2 0/05/2015 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 ITA NO.2265/AHD /2015 ACIT VS. M/S.HONEST ENTERPRISE LTD. ASST.YEAR 2011-12 - 2 - (HEREINAFTER REFERRED TO AS 'THE ACT') DATED 13/03 /2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011-12. 2. THE CAPTIONED APPEAL INVOLVES SOLITARY ISSUE TO WARDS APPLICABILITY OF SECTION 195 AND CONSEQUENTLY SECTION 40(A)(I) TO WARDS FOREIGN REMITTANCES TO NON-RESIDENTS AGGREGATING TO RS.33, 65,658/- TOWARDS FREIGHT CHARGES AND CARGO HANDLING SERVICES (INCLUD ING FOR INSPECTION AND LOGISTICS SERVICE CHARGES). IN THE COURSE OF ASSES SMENT PROCEEDINGS UNDER S.143(3) OF THE ACT, IT WAS OBSERVED BY THE ASSESSI NG OFFICER (AO) THAT THE AFORESAID PAYMENTS TOWARDS EXPENSES INCURRED HA VE BEEN MADE WITHOUT DEDUCTION OF TAX AT SOURCE IN TERMS OF SECT ION 195 OF THE ACT. IT WAS CLAIMED BY THE ASSESSEE THAT INCOME-TAX IS NOT DEDUCTIBLE ON THE AFORESAID PAYMENTS TO NON-RESIDENTS FOR THE REASON THAT SERVICES WERE RENDERED BY THEM OUTSIDE INDIA AND IN THE ABSENCE O F ANY PERMANENT ESTABLISHMENT IN INDIA, THE RECIPIENTS ARE NOT CHARGEABLE TO TAX IN INDIA ON THE PAYMENTS RECEIVED AS INCOME NEITHER ACCRUES OR ARISES IN INDIA NOR THE SAME IS DEEMED TO HAVE SO ACCRUED OR ARISEN IN INDIA. THE AO HOWEVER, DID NOT FIND ANY JUSTIFICATION IN THE PLEA OF THE ASSESSEE FOR NON- DEDUCTION AS CONTEMPLATED UNDER S.195 OF THE ACT. C ONSEQUENTLY, PROVISIONS OF SECTION 40(A)(I) OF THE ACT WAS INVOK ED TO DENY THE DEDUCTIONS CLAIMED TOWARDS EXPENDITURE INCURRED WHE RE TDS WAS NOT DEDUCTED ON REMITTANCES MADE. ITA NO.2265/AHD /2015 ACIT VS. M/S.HONEST ENTERPRISE LTD. ASST.YEAR 2011-12 - 3 - 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER EXAMINING THE FACTS IN DETAIL, REVERSE D THE ACTION OF THE AO AND GRANTED RELIEF TOWARDS SUCH DISALLOWANCE. IT W AS OBSERVED BY THE CIT(A) THAT EXPENSES HAVE BEEN INCURRED IN FOREIGN CURRENCY AND THE SAME HAVE BEEN REMITTED TO NON-RESIDENTS OUTSIDE IN DIA FOR THE SERVICES RENDERED OUTSIDE INDIA. THE RELEVANT OPERATIVE PAR AS OF THE ORDER OF THE CIT(A) ARE REPRODUCED HEREUNDER. 5. I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMI SSIONS OF THE APPELLANT AND THE AOS OBSERVATIONS. THE AO IN THE ASSESSMEN T ORDER HAS MENTIONED THAT THE APPELLANT COMPANY DURING THE YEA R UNDER CONSIDERATION HAS MADE PAYMENTS OF RS.33,65,658/- I N FOREIGN CURRENCY TO NON-RESIDENCE AND DETAILS OF SUCH PAYMENTS ARE G IVEN BY THE AO IN THE ASSESSMENT ORDER. THE AO WAS OF THE OPINION THA T TDS WAS REQUIRED TO BE MADE ON THESE PAYMENTS OF RS. 33,65,658/- WHI CH WAS MADE TO THE FOREIGN PARTIES ON ACCOUNT OF FREIGHT CHARGES AND CARGO HAN DLING CHARGES. THE AO HAS REFERRED TO SECTION 195 R.W.S. 40(A)(I) OF T HE ACT IN HIS ASSESSMENT ORDER AND HAS HELD THAT AMOUNT OF FO REIGN REMITTANCES OF RS.33,65,658/- WITHOUT TDS TO NON-RESIDENCE WAS DIS ALLOWABLE. AS PER THE AO THE CIRCULAR QUOTED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS NAMELY 723 DATED 19/09/1995 W AS RELATED WITH THE PROVISIONS OF SECTION 172 WHICH WERE RELATED WI TH THE, MODE OF LEVY AND RECOVERY OF TAX IN CASE OF ANY SHIP BELONGING T O OR CHARTERED BY A NON-RESIDENCE, WHICH CARRIES PASSENGERS, LIVE STOCK , MAIL OR GOODS SHIPPED AT A PORT IN INDIA. IN VIEW OF THIS FACT TH E AO DISALLOWED THE ABOVE AMOUNT OF FOREIGN REMITTANCES OF RS.33,65,658 /- AS THE TAX AT SOURCE WAS NOT DEDUCTED ON SUCH AMOUNT AND ADDED TH E SAME TO THE TOTAL INCOME OF THE APPELLANT. ITA NO.2265/AHD /2015 ACIT VS. M/S.HONEST ENTERPRISE LTD. ASST.YEAR 2011-12 - 4 - 5.1 BUT IN MY OPINION, THE AO IS NOT CORRECT IN MAKING DISALLOWANCE OF ABOVE PAYMENTS OF RS.33,65,658/- AS MADE BY THE APPELLANT TO SHENZHEN UNI-GRANDOCEAN INTERNATIONAL LOGISTIC CO. LTD. AND ABS CO. LTD. ON ACCOUNT OF FREIGHT CHARGES, CARGO HANDLING SERVICES, INSPECTION AND LOGISTIC CHARGES. THE FACT IS THAT THE EXPENDIT URES OF RS.33,65,658/- WERE INCURRED BY THE APPELLANT IN FOREIGN CURRENCY AND THE SAME WERE REMITTED TO THE NON-RESIDENTS ON ACCOUNT OF FREIGHT CHARGES AND CARGO HANDLING SERVICES, INSPECTION AND LOGISTIC CHARGES. THESE NON-RESIDENTS I.E. SHENZHEN UNI-GRANDOCEAN INTERNATIONAL LOGISTIC CO. LTD. AND ABS CO. LTD. HAD RENDERED THEIR SERVICES OUTSIDE INDIA AND THEY HAD NO PERMANENT ESTABLISHMENT IN INDIA OR ANY AGENT IN IN DIA. THUS, IT CANNOT BE SAID THAT THE INCOME OF RS.33,65,658/- WERE ACCR UED TO OR ARISEN TO THESE TWO PARTIES IN INDIA. SINCE THE INCOME IN QUE STION, (I.E. THE FOREIGN REMITTANCES OF RS. 33,65,658/- MADE BY THE APPELLAN T TO THE ABOVE PARTIES) WAS NOT TAXABLE IN INDIA AND THEREFORE THE SAME WAS NOT SUBJECT TO TDS U/S 195 OF THE IT ACT AND THEREFORE SECTION 40(A)(I) WAS NOT APPLICABLE IN THE CASE OF APPELLANT. I AGREE WITH T HE SUBMISSION OF THE APPELLANT AS REPRODUCED IN EARLIER PARAGRAPHS OF TH IS APPEAL ORDER ON THIS ISSUE. IN MY OPINION, THE APPELLANT HAS CORREC TLY PLACED RELIANCE ON DECISIONS OF HON'BLE ITAT, DELHI IN THE CASE OF DCI T, CIRCLE-3(1), NEW DELHI V. CHANDABH IMPEX (P.) LTD. [(2013) 40 TAXMAN N.COM 310 AND ON DECISION OF HON'BLE ITAT, MUMBAI IN THE CASE OF UPS SCS (ASIA) LIMITED V. ADIT (INTERNATIONAL TAXATION)-2(2) [(201 2) 18 TAXMANN.COM 302. THE HON'BLE ITAT, DELHI IN THE CASE OF DCIT, C IRCLE-3(1), NEW DELHI V. CHANDABH IMPEX (P.) LTD. HAS HELD THAT WHE RE ASSESSEE PAID FREIGHT CHARGES TO FOREIGN PARTIES OUTSIDE INDIA, T HE INCOME DID NOT ACCRUE OR ARISE IN INDIA AND THEREFORE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING SAID PAYMENTS. SI MILAR VIEW IS HELD BY HON'BLE ITAT, MUMBAI IN THE ABOVE CASE OF DCIT, CIRCLE-3(1), NEW DELHI V. CHANDABH IMPEX (P.) LTD. IN VIEW OF THESE FACTS IT IS HELD THAT THE AO IS NOT CORRECT IN MAKING DISALLOWANCE OF EXP ENSES OF RS.33,65,658/- AND THEREFORE THE SAME IS DELETED. T HUS, THE GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 4. THE CIT(A) ACCORDINGLY FOUND MERIT IN THE CLAIM OF THE ASSESSEE TOWARDS NON-APPLICABILITY OF SECTION 195 OF THE ACT TO SUCH REMITTANCES ITA NO.2265/AHD /2015 ACIT VS. M/S.HONEST ENTERPRISE LTD. ASST.YEAR 2011-12 - 5 - TO NON-RESIDENTS AND ACCORDINGLY DELETED CONSEQUENT IAL DISALLOWANCE MADE UNDER S.40(A)(I) OF THE ACT. 5. AGGRIEVED, THE REVENUE PREFERRED APPEAL BEFORE T HE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WITH THE AS SISTANCE OF THE LD.DR FOR THE REVENUE AND LD.AR FOR THE ASSESSEE, W E OBSERVE THAT THE CIT(A) HAS RIGHTLY CONCLUDED THAT THE FREIGHT CHARG ES AND CARGO HANDLING CHARGES PAID BY THE ASSESSEE IN FOREIGN CURRENCY TO NON-RESIDENTS FOR SERVICES RENDERED OUTSIDE INDIA IS NOT SUSCEPTIBLE TO PROVISIONS OF SECTION 195 OF THE ACT. IT IS AN ADMITTED POSITION THAT TH E RECIPIENTS DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA OR ANY AGENT I N INDIA. CONSEQUENTLY, THE CHARGEABLE INCOME THEREOF UNDER S.4 DID NOT ACCRUE OR ARISE IN INDIA IN THE HANDS OF THE NON-RESIDENTS HA VING REGARD TO SECTION 5 R.W.S.9(1) OF THE ACT. ACCORDINGLY, WHERE THE INCO ME IN THE HANDS OF NON-RESIDENTS IN QUESTION I.E. FOREIGN REMITTANCES MADE BY THE ASSESSEE WAS NOT TAXABLE IN INDIA, THE REMITTANCE WAS NOT SU SCEPTIBLE TO WITHHOLDING OF TAXES (TDS) UNDER S.195 OF THE ACT. IN THE ABSENCE OF ABLIGATION CAST UPON THE ASSESSEE TO DEDUCT TDS UND ER S.195, SECTION 40(A)(I) HAS NO APPLICATION IN THE INSTANT CASE FOR DISALLOWANCE OF THE EXPENSES. THE CIT(A) HAS RIGHTLY CONCLUDED THE ISS UE IN FAVOUR OF ASSESSEE. WITHOUT FURTHER ELABORATION, WE DO NOT SEE ANY WARRANT TO INTERFERE WITH THE ORDER OF THE CIT(A). ITA NO.2265/AHD /2015 ACIT VS. M/S.HONEST ENTERPRISE LTD. ASST.YEAR 2011-12 - 6 - 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/ 02/2018 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 23/ 02/2018 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-1, VADODARA 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..21.2.18 (DICTATION-PAD 9- P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.2.18 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.23.2.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 23.2.18 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER