Dy.CIT, Circle-16(1), Hyderabad V. M/s Linkwell Telesystems (P) Limited, Hyderabad

ITA 250/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74432 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SHIV KUMAR
• Keywords: Services rendered outside India
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 250/HYD/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 16(1), HYDERABAD. VS. M/S LINKWELL TELESYSTEMS (P) LTD., HYDERABAD. PAN AAACL3452E APPELLANT RESPONDENT APPELLANT BY: SRI JEEVAN LAL LAVIDIYA RESPONDENT BY: SRI V. SHIV KUMAR DATE OF HEARING: 02/01/2014 DATE OF PRONOUNCEMENT: 02/01/2014 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 30/11/2012 F OR THE ASSESSMENT YEAR 2009-10 WHEREIN THE REVENUE HAS RAI SED THE FOLLOWING SUBSTANTIAL GROUNDS: II). WHETHER THE LEARNED CIT(A) IS RIGHT IN HOLDING THAT THE PROVISIONS OF SECTION 195 ARE NOT APPLICABLE FOR PA YMENTS OF COMMISSION. III) WHETHER THE LEARNED CIT(A) IS RIGHT IN HOLDING THAT THE PROVISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE F OR COMMISSION PAID BY THE ASSESSEE TO NON-RESIDENTS. IV) WHETHER THE LEARNED CIT(A) OUGHT TO HAVE HELD T HAT THE PAYMENTS RELATE TO SERVICES UTILIZED IN INDIA AND T HEREFORE THE PROVISIONS OF SECTION 195 AND SECTION 40(A)(I) ARE APPLICABLE. I.T.A. NO.250/HYD/2013 M/S LINKWELL TELESYSTEMS (P) LTD., HYDERABAD 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS IN MANUFACTURING OF ELECTRO NIC AND TELECOMMUNICATION EQUIPMENT. FOR THE AY 2009-10, IT FILED THE RETURN OF INCOME ON 25/09/2009 ADMITTING TOTAL INCO ME OF RS. 3,94,52,230/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOT AL INCOME OF ASSESSEE COMPANY AT RS. 4,48,88,326/- BY MAKING FOL LOWING ADDITIONS: A) DISALLOWANCE OF PAYMENT MADE TO LIC INDIA TOWARD S GRATUITY FUND AMOUNTING TO RS. 7,35,267/-. B) DISALLOWANCE OF COMMISSION PAYMENT U/S 40(A)(I) AMOUNTING TO RS. 47,00,829/-. 3. ON APPEAL, THE CIT(A) DELETED THE SAID ADDITIONS MADE BY THE ASSESSING OFFICER FOLLOWING HIS ORDER IN ASSESSEES CASE FOR AY 2006-07, WHICH WAS UPHELD BY THE TRIBUNAL RELYING O N ITS DECISION IN THE CASE OF DCIT VS. DIVIS LABORATORIES LTD., 131 ITD 271(HYD.). 4. REVENUE IS IN APPEAL BEFORE US AGAINST THE ACTIO N OF THE CIT(A) IN DELETING THE DISALLOWANCE OF COMMISSION P AYMENT U/S 40(A)(I) AMOUNTING TO RS. 47,00,829/- MADE BY THE A SSESSING OFFICER. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THE SIMILAR ISSUE CAME UP BEFORE TH E TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 943/ HYD/2010 DATED 23/08/2011, WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 4. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF DCIT VS. DIVIS LABORATORIES LTD. (131 ITD 271)(HYD). THE TRIBUNAL AFTER CONSIDERING THE ENTIR E ISSUE HELD AS UNDER: THE CBDT BY ITS RECENT CIRCULAR NO.7, DATED 22.10.2009 HAD WITHDRAWN ITS EARLIER CIRCULAR NOS.2 3 DATED 23.7.2009, 163 DATED 29.5.1975 AND 786 DATED 7.2.2000. THE EARLIER CIRCULARS ISSUED BY THE CBDT HAD CLEARLY DEMONSTRATED THE ILLUSTRATIONS TO EXPLAIN T HAT SUCH COMMISSION COULD BE PAID WITHOUT DEDUCTION OF I.T.A. NO.250/HYD/2013 M/S LINKWELL TELESYSTEMS (P) LTD., HYDERABAD 3 TAX. THUS, THE MAIN THRUST IN SUCH A SITUATION IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON RESIDENT ENTITIES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSABLE TO TAX. SEC .195 VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABL E TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. IN ORDER TO DETERMINE WHETHER THE INCOME CAN BE DEEMED TO BE ACCRUED OR ARISEN IN INDIA, SECTION 9 IS THE BASIS. THIS SECTION DOES NOT PROVIDE SCOPE FOR TAXING SUCH PAYMENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUING OR ARISING IN INDIA, BY VIRTUE OF CONNECTION WITH THE PROPERTY IN INDIA, CONTROL AND MANAGEMENT VESTED IN INDIA, WHICH WERE NOT SATISFIED IN THE INSTANT CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSU ED BY THE CBDT HAD NO ASSISTANCE TO THE DEPARTMENT, IN AN Y WAY IN DISALLOWING SUCH EXPENDITURE. IT APPEARED TH AT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATED IN HI S OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN IND IA AND HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN INDIA AND, THEREFORE, THE SAME IS NOT RECEIVED BY H IM ON HIS BEHALF CASES. UNDER THESE CIRCUMSTANCES, WITHDRAWAL OF EARLIER CIRCULARS ISSUED BY THE CBDT HAD NO ASSISTANCE TO THE DEPARTMENT IN ANY WAY IN DISALLOWING SUCH EXPENDITURE. IT APPEARED THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATED IN HIS O WN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA A ND HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM BY WAY OF TT OR POSTING OF CHEQUES/DEMAND DRAFTS IN IN DIA AND, THEREFORE, THE SAME IS NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA AND SUCH AN OVERSEAS AGENT IS N OT LIABLE TO INCOME TAX IN INDIA AND THOSE COMMISSION PAYMENTS. SEC. 195 HAS TO BE READ ALONG WITH THE CHARGING SECTION 4,5, AND 9. ONE SHOULD BE READ SEC TION 195 FOR MEAN THAT THE MOMENT THERE IS A REMITTANCE; THE OBLIGATION TO DEDUCT TDS AUTOMATICALLY ARISE. IF SU CH CONTENTION WAS TO BE ACCEPTED, IT WOULD MEAN THAT O N MERE PAYMENT IN INDIA, INCOME WOULD BE SAID TO ARIS E OR ACCRUED IN INDIA. IF THE CONTENTIONS OF THE DEPARTM ENT WERE TO BE TAKEN AS CORRECT, THAT ANY PERSON MAKING PAYMENT TO A NON RESIDENT WAS NECESSARILY REQUIRED TO DEDUCT TAX, THEN THE CONSEQUENCES WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MON IES DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE ACT BY WHICH A PAYER CAN OBTAIN REFUND. AS PER SECT ION 237 READ WITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM I.E. PAYEE WOULD SEEK A REFUND . IN VIEW OF THE ABOVE HENCE NO TAX IS DEDUCTIBLE U/S 19 5 ON I.T.A. NO.250/HYD/2013 M/S LINKWELL TELESYSTEMS (P) LTD., HYDERABAD 4 COMMISSION PAYMENTS AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION PAYABLE TO NON RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOME S ALLOWABLE EXPENDITURE AND THE SAME IS OUTSIDE RIGOR S OF SECTION 40(A)(IA). IN THE INSTANT CASE, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD NOT BEEN ABLE TO ESTABLISH TH AT THERE WAS SPECIFIC INTENTION OF THE PAYEE TO RECEIV E THE PAYMENT WITHIN THE TERRITORY OF INDIA, THEREFORE, T HE CIT(A) RIGHTLY DID NOT AGREE WITH THE VIEW TAKEN BY THE ASSESSING OFFICER WITH REGARD TO THE ADDITION MADE ON THIS ISSUE AND THE CIT(A) WAS JUSTIFIED IN DIRECTIN G THE ASSESSING OFFICER TO DELETE THE SAID ADDITION. AFTE R CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTA NCES OF THE CASE THE ORDER OF THE CIT(A) ON THIS ISSUE W AS NOT TO BE INTERFERED WITH AND, ACCORDINGLY, THE SAM E WAS TO BE UPHELD. 5. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THIS T RIBUNAL, WE ARE INCLINED TO DECIDE THE ISSUE IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. 6. MOREOVER, IN AY 2008-09, WHEN THE REVENUE CAME I N APPEAL TO TRIBUNAL ON SIMILAR GROUNDS IN ASSESSEES OWN CA SE, THE COORDINATE BENCH DISMISSED THE APPEAL OF THE REVENU E IN ITA NO. 303/HYD/2012 ORDER DATED 30/07/2012 FOLLOWING ITS D ECISION IN THE CASE OF DCIT VS. DIVIS LABORATORIES LTD., 131 ITD 2 71. 7. SINCE THE ISSUE UNDER CONSIDERATION IS MATERIALL Y IDENTICAL TO THAT OF THE CASES DECIDED BY THE TRIBUNAL IN ASSESS EES OWN CASE FOR AY 2006-07 AND 2008-09, RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROU NDS RAISED BY THE REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 02/01/2014. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 02/01/2014. I.T.A. NO.250/HYD/2013 M/S LINKWELL TELESYSTEMS (P) LTD., HYDERABAD 5 KV COPY FORWARDED TO: 1. DCIT, CIRCLE 16(1), ROOM NO. 612, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 2. M/S LINKWELL TELEYSTEMS (P) LTD., 11-252/1/A, GOWRAKLASSIC, LANE BEHILD SHOPPERS STOP, BEGUMPET, HYDERABAD 500 082. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. THE DR, ITAT, HYDERABAD