Textures & Weaves (India) P Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2416/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8871 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.2416 & 2417/MDS/2014 ' (' / ASSESSMENT YEARS : 2009-10 & 2010-11 M/S TEXTURES & WEAVES (INDIA) PVT. LTD., NO.6/1, SILAMBU STREET, PADMANABHA NAGAR, CHOOLAIMEDU, CHENNAI - 600 094 PAN : AALCS 1660 E V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE ,-*+ . / / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT 0 . 1$ / DATE OF HEARING : 14.06.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 01.07.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGA INST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME T AX (APPEALS) III, CHENNAI, DATED 07.07.2014 AND PERT AIN TO ASSESSMENT YEARS 2009-10 AND 2010-11. 2 I.T.A. NOS.2416 & 2417/MDS/14 2. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IN BOT H THE APPEALS IS DISALLOWANCE OF FOREIGN AGENT COMMISSION FOR NON-DE DUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDING TO THE LD. COUNSEL, FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 59,28,699/- AND FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSING OFFICER DISALLOWED A SUM OF ` 1,00,73,295/-. REFERRING TO THE ORDERS OF THE ASSESSING OFFICER, THE LD.COUNSEL SUBMITTED THAT TH E ASSESSEE HAD AN AGENT BY NAME TEXTILE CREATIONS INC AT NEW JERSE Y, USA. ACCORDING TO THE LD. COUNSEL, THE AGENCY RENDERED S ERVICE OUTSIDE INDIA AND IT HAS NO PERMANENT ESTABLISHMENT IN INDI A. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE INCOME DERIVED BY THE USA COMPANY IS NOT TAXABLE IN INDIA, HENCE THE PROVISIO NS OF SECTION 195 OF THE ACT IS NOT APPLICABLE. IN OTHER WORDS, ACCO RDING TO THE LD. COUNSEL, THE ASSESSEE IS NOT EXPECTED TO DEDUCT TAX AT THE TIME OF PAYMENT, THEREFORE, THE DISALLOWANCE MADE BY THE AS SESSING OFFICER IS NOT JUSTIFIED. PLACING RELIANCE ON THE DECISION OF THIS BENCH OF THE TRIBUNAL IN I.T.A. NO.2260/MDS/2014 DATED 19.06.201 5 AND I.T.A. NO.158/MDS/2016 DATED 19.05.2016, THE LD.COUNSEL SU BMITTED THAT WHEN THE AGENCY OF THE FOREIGN COUNTRY COMMUNICATED THE LATEST 3 I.T.A. NOS.2416 & 2417/MDS/14 TREND IN THE FASHION TO THE ASSESSEE IN INDIA SO AS TO ENABLE THE ASSESSEE TO PRODUCE / MANUFACTURE ITS PRODUCTS IN T UNE WITH LATEST TREND, WHICH IS PREVALENT OUTSIDE THE COUNTRY, CANN OT BE CONSTRUED AS PROVIDING TECHNICAL SERVICE IN INDIA. IN VIEW O F THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, ACCORDING TO TH E LD. COUNSEL, THE COMMISSION PAID BY THE ASSESSEE TO TEXTILE CREATION S INC AND STUDIO 40 INC AT NEW JERSEY CANNOT BE DISALLOWED UN DER SECTION 40(A)(IA) OF THE ACT. 3. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF FABRIC EXPORTS. DURING THE ASSESSMENT YEAR 2009-10, THE ASSESSEE HAS PAID FOREIGN AGENT COMMISSION TO T HE EXTENT OF ` 59,28,699/-. SIMILARLY FOR THE ASSESSMENT YEAR 201 0-11, THE ASSESSEE CLAIMED A SUM OF ` 1,00,73,295/- AS PAYMENT MADE TO FOREIGN AGENT COMMISSION. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE PAID A SUM OF ` 59,28,699/- TO M/S TEXTILE CREATIONS INC AT NEW JERSEY, USA. FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSEE PAID A SUM OF ` 1,00,73,295/- TO M/S STUDIO 40 INC, NEW JERSEY, USA. ACCORDING TO THE LD. D.R., THE ASSESSING OFFI CER AS WELL AS CIT(APPEALS) FOUND THAT THE FOREIGN AGENCIES ARE PR OVIDING ROUTINE 4 I.T.A. NOS.2416 & 2417/MDS/14 SERVICE LIKE FOLLOW UP OF PAYMENTS, ETC. THE FOREI GN AGENCIES HAVE ALSO PROVIDED FASHION FORECAST AND TREND FROM TIME TO TIME TO FACILITATE DEVELOPMENT OF NEW MERCHANDISE. ACCORDI NG TO THE LD. D.R., FASHION FORECAST AND LATEST TREND IN THE FABR IC MARKET CAN BE PROVIDED ONLY BY PERSONS WHO ARE SPECIALISTS IN THE GARMENT INDUSTRY AND NOT BY A COMMON MAN. ACCORDING TO THE LD. D.R., THE FOREIGN AGENCIES ARE REALLY SKILLED AND CREATIVE FO R THE PURPOSE OF OBSERVING THE LATEST TREND IN FASHION. THE ASSESSE E HAS ALSO DEDUCTED TAX IN RESPECT OF PAYMENT MADE TO M/S STUD IO 40 INC ON THE PAYMENT MADE IN THE SUBSEQUENT YEARS. THEREFOR E, ACCORDING TO THE LD. D.R., THE ASSESSEE ITSELF ADMITTED THAT THE SERVICE RENDERED BY M/S STUDIO 40 INC IS IN THE NATURE OF T ECHNICAL SERVICE. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOR BO TH THE ASSESSMENT YEARS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. D.R., THE ASSESSEE HAS PAID A SUM OF ` 59,28,699/- TO M/S TEXTILE CREATIONS INC AT NEW JER SEY, USA FOR THE ASSESSMENT YEAR 2009-10 AND SIMILARLY FOR THE A SSESSMENT YEAR 5 I.T.A. NOS.2416 & 2417/MDS/14 2010-11, THE ASSESSEE HAS PAID A SUM OF ` 1,00,73,295/- TO M/S STUDIO 40 INC. THE ASSESSEE IS ADMITTEDLY ENGAGED IN THE BUSINESS OF FABRIC EXPORTS. THE AGENTS AT NEW JERSEY, NAMEL Y, TEXTILE CREATIONS INC AND STUDIO 40 INC, ADMITTEDLY, COMMUN ICATED THE LATEST FASHION AND TREND IN THE MARKET APART FROM P ROVIDING DETAILS OF FASHION FORECAST. THE QUESTION ARISES FOR CONSIDER ATION IS WHETHER THE COMMUNICATION MADE BY THE FOREIGN AGENTS WOULD AMOUNT TO SERVICE RENDERED IN INDIA AND WHETHER IT CAN BE TRE ATED AS TECHNICAL SERVICES? THIS FACT WAS EXAMINED BY THIS TRIBUNAL ELABORATELY IN THE CASE OF ACIT V. KAMIL LEATHERS IN I.T.A. NO. 2260/M DS/2014 DATED 19.06.2015. THIS TRIBUNAL, AFTER CONSIDERING THE M ATERIAL AVAILABLE ON RECORD FOUND THAT THE COMMUNICATION OF LATEST TR END IN FASHION CANNOT AMOUNT TO PROVIDING TECHNICAL SERVICE. THIS TRIBUNAL FURTHER FOUND THAT TECHNICAL SERVICE IS SOMETHING WHICH GOE S IN THE MANUFACTURING PROCESS BY APPLYING THE TECHNIQUES PR OVIDED BY THE NON-RESIDENT. IN THIS CASE, NO SUCH TECHNIQUE WAS PROVIDED BY THE NON-RESIDENTS AND WHAT WAS PROVIDED WERE CHANGES IN FASHION AND TREND PREVAILING IN THE MARKET OUTSIDE INDIA. THER EFORE, THIS TRIBUNAL FOUND THAT OPINION OR COMMUNICATION GIVEN BY THE FO REIGN AGENT DOES NOT AMOUNT TO PROVIDING TECHNICAL SERVICE. TH IS ORDER OF THE 6 I.T.A. NOS.2416 & 2417/MDS/14 TRIBUNAL WAS FOLLOWED BY ANOTHER DIVISION BENCH OF THIS TRIBUNAL IN I.T.A. NO.158/MDS/2016. 5. IN VIEW OF THE ABOVE DECISIONS OF CO-ORDINATE BE NCH OF THIS TRIBUNAL, THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT MERE PROVIDING FASHION FORECAST AND LATEST TREND IN THE FASHION CANNOT BE CONSIDERED TO BE TECHNICAL SERVICE. THEREFORE, THE ASSESSEE IS NOT EXPECTED TO DEDUCT TAX FOR PAYMENT MADE TO FOREIGN AGENTS, UNDER SECTION 195 OF THE ACT. THEREFORE, THE DISALLOWANC E MADE BY THE ASSESSING OFFICER BY APPLYING THE PROVISIONS OF SEC TION 40(A)(IA) OF THE ACT IS NOT JUSTIFIED. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE ADDITION MADE BY THE AS SESSING OFFICER FOR BOTH THE ASSESSMENT YEARS IS DELETED. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 1 ST JULY, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 1 ST JULY, 2016. KRI. 7 I.T.A. NOS.2416 & 2417/MDS/14 . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-III, CHENNAI-34 4. 0 81 /CIT, CHENNAI-III, CHENNAI-34 5. 69 ,1 /DR 6. :' ; /GF.