Vaigai Leather Corporation , Chennai V. ACIT, Non Corporate Circle - 6(1), Chennai

ITA 2318/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5764 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 22-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT D R
• Assessee Lawyers: N VIJAY KUMAR
• Keywords: Retrospective amendment

Judgement Text

, C/ SMC , IN THE INCOME TAX APPELLATE TRIBUNAL C/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2318 /MDS./2017 ( ASSESSMENT YEAR : 2011-12 ) M/S.VAIGAI LEATHER CORPORATION, NO.41,PERIANNA MAISTRY STREET, PERIAMET, CHENNAI 600 003. VS. THE ACIT, NON CORPORATE CIRCLE 6(1), CHENNAI. PAN AAAFV 5714 C ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.N.VIJAY KUMAR, C.A / RESPONDENT BY : MR.B.SAGADEVAN, JCIT, D.R ! ' / DATE OF HEARING : 30.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 07.12.2017 / 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, CHENNA I DATED 27.07.2017 PERTAINING TO ASSESSMENT YEAR 2011-12. ITA NO. 2318/MDS/2017 2 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR A DJUDICATION. 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CAS E AND AT ANY RATE IS OPPOSED TO THE PRINCIPLES OF EQUITY, NATURAL JUSTIC E AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER IS WITHOUT JURISDICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THE DISALLOWANCE OF COMMISSION PAID TO FOREIGN AGENT AM OUNTING TO RS.8,77,013/- U/S.40(A)(I). 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 40(A)(I) ARE NOT APP LICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE REQUIREMENT TO DEDUCT TAX AT SOURCE ULS.19 5 DOES NOT ARISE ON COMMISSION PAID TO FOREIGN AGENT FOR PROCURING BUSI NESS. 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE FOREIGN AGENT DID NOT HAVE ANY BUSINESS CO NNECTION IN INDIA. 7. FOR THAT THE APPELLANT HAS NOT BEEN TREATED AS A N ASSESSEE IN DEFAULT U/S.201 (1) AND HENCE NO DISALLOWANCE IS WARRANTED U/S.40(A)(I) 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF ` 27,27,789/- ON 01.10.2011. THE CASE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND ORDER U/S.143(3) OF THE ACT WAS PASSED ON 31.10.201 4 ,THEREBY DETERMINING THE TOTAL INCOME AT ` 36,04,800/-. FURTHER, THE AO NOTICED ITA NO. 2318/MDS/2017 3 THAT THE ASSESSEE HAD DEBITED A SUM OF ` 8,77,013/- AS FOREIGN AGENT COMMISSION WITHOUT DEDUCTING TAX AT SOURCE IN VIOLA TION TO THE PROVISIONS OF THE SECTION 195 R.W.S.40(A)(I) OF THE ACT. 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 ` 8,77,013/- TO FOREIGN AGENTS WHICH THE ASSESSEE FAI LED TO DO SO THEREBY VIOLATING THE PROVISIONS OF SECTION U/S.40( A)(I) OF THE I.T. ACT, 1961. ACCORDINGLY, THE LD. ASSESSING OFFICER DISALL OWED ` 8,77,013/- PAID TOWARDS FOREIGN AGENT COMMISSION, NAMELY, M/S. G.&L ENTERPRISE, HON KONG RENDERING THE SERVICE OF PROCU RING BUSINESS FOR THE ASSESSEE ENTIRELY ABROAD, ON THE GROUND THAT NO N-DEDUCTION OF TAX AT SOURCE. 3.1 AGGRIEVED BY THE ORDER OF LD. ASSESSING OFFICE R, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL , LD.CIT(A) AFTER GOING THROUGH THE AOS REMAND REPORT AND FOLLOWING THE DECISION OF CO-ORDINATE BENCH OF CHENNAI TRIBUNAL IN THE CASE OF ACIT VS. EURO ITA NO. 2318/MDS/2017 4 LEDER FASHIONS LTD IN 64 TAXMANN.COM 253(CHENNAI), CONFIRMED THE ORDER OF LD. ASSESSING OFFICER. AGAINST THE ORDER O F LD.CIT(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 ITA NO. 2318/MDS/2017 5 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 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 ITA NO. 2318/MDS/2017 6 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 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 ITA NO. 2318/MDS/2017 7 (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 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 ITA NO. 2318/MDS/2017 8 DEDUCTION OF TAX IS THE INCOME MUST BE CHARGEABLE U NDER THE PROVISIONS OF THE ACT. 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, I AM NOT IN A POSITION TO 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 ITA NO. 2318/MDS/2017 9 COMMISSION TOWARDS PROCUREMENT OF ORDERS FROM ABROA D. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTED BACK TO T HE FILE OF THE AO 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 07.12.2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 07.12.2017 K S SUNDARAM. ' ( )!*+ ,+%! / COPY TO: 1 . / APPELLANT 3. ' ' -! () / CIT(A) 5. +0 1 )!)23 / DR 2. / RESPONDENT 4. ' ' -! / CIT 6. 1 45 6 / GF