ASST CIT 16(3), MUMBAI V. BENI IMPEX, MUMBAI

ITA 2503/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101283 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWALDR
• Keywords: Double taxation relief; Services rendered outside India; Permanent establishment

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , ,, , !'# , ,, , $ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY,JUDICIAL MEMBER /.ITA NO.2503/MUM/2014, % & /ASSESSMENT YEAR-2010-11 ACIT-RANGE-16(3) MATRU MANDIR, 2 ND FLOOR ROOM NO.206, TARDEO ROAD MUMBAI-400 007. VS M/S. BENI IMPEX 237/38, 2 ND FLOOR, NEW SONAL LINK ESTATE, BLDG. NO.2, LINK ROAD, MALAD (W) MUMBAI-400 044. PAN: AAAFB 1498 D ( / APPELLANT) ( / RESPONDENT) %'# /ASSESSEE BY : SHRI BHUPENDRA SHAH / REVENUE BY : SHRI SAMIR TEKRIWALDR / DATE OF HEARING : 06-10- 2015 / DATE OF PRONOUNCEMENT : 09 -10-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) )*# ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 11.09.2013 OF CIT(A)-17,MUMBAI,THE ASSESSING OFFICER(AO) HAS F ILED THE PRESENT APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF EXPORT OF GENERAL COMMERCIAL GOODS,FILED ITS RETURN OF INCOME ON 19.09.2010,DECLARING TOTAL INCO ME OF RS.28.21 LAKHS .THE AO COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT ON 31.10.2013,DETE RMINING THE INCOME OF THE ASSESSEE AT RS. 47.32 LAKHS. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT ALLOWING EXPORT COMMISSION OF RS.19.11 LAKHS U/S.40(A)(IA) R.W.S.195(1)OF THE ACT IN VIEW OF EXPLANATION 2 TO SECTION 9(1)(VII) AND NOT TAKING COGNISANCE OF THE PROVISIONS OF ARTICLE 12 OF DTAA.DURING THE AS SESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD PAID RS.19,11,033/- TO MIRIAN FZE,UAE BEING THE EXPORT COMMISSION,THAT IT DID NOT DEDUCT TAX AT SOURCE FOR SUCH PAYMENT.HE HELD THAT THE PAYMENTS WERE CHARGEABLE TO TAX,THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX AS PER THE PROVIS IONS OF SECTION 195 OF THE ACT.INVOKING THE PROVISIONS OF SECTION 40(A)(IA),THE AO MADE A DISAL LOWANCE OF RS.19.11 LAKHS. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM IT WAS CONTENTED THAT OU T OF THE TOTAL COMMISSIONS PAYMENT THEASSESSEE HAD PAID RS.2.14 LAKHS TO THE LOCAL AGE NTS,THAT IT HAD DEDUCTED TAX U/S.194H OF THE ACT FOR THE SAID PAYMENT,THAT PROVISIONS OF SECTION 195 WERE NOT APPLICABLE TO THE FACTS OF THE CASE.IN ITS SUPPORT THE ASSESSEE RELIED UPON CERTAI N CASES. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,HE HELD THAT PAYMENT TO THE UAE PARTY WERE IN RESPECT OF EXPORT COMMISSI ON,THAT MIRIAN FZE WAS A RESIDENT OF SHARJAH,THAT IT DID NOT HAVE ANY PERMANENT ESTABLIS HMENT IN INDIA,THAT THE SERVICES WERE RENDERED IN RESPECT OF PROCUREMENT OF EXPORT ORDERS OUTSIDE INDIA,THAT THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX WITH REGARD TO SUCH COMMISSION PAYMENT.W ITH REGARD TO THE LOCAL COMMISSION,HE HELD THAT AO SHOULD VERIFY THE CLAIM.REFERRING TO THE CB DT CIRCULAR NO.7 DATED 22.10.2009 HE HELD ITA NO.2503/ 14-BENI IMPEX(10-11) 2 THAT COMMISSION PAYMENT OF US DOLLAR 112 ON 23.12.2 009 WAS NOT ALLOWABLE.HE REFERRED TO THE CASES OF G E INDIA TECHNOLOGY CENTER PVT.LTD.(327 I TR456),ADDIDAS SOURCING LTD.(28TAXMANN.267),WNS GLOBAL SERVICES(UK)LTD.(40 TAXMANN.COM.315)AND PARTLY ALLOWED THE APPEAL FILED BY THEASSESSEE. 4. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE RELIED UPON THE ORDER OF THE FAA AND REFERRED TO THE CASE OF INDO INDUSTRIES LIMITED(ITA/183/MUM/2014-AY.2010-11 DATED 14.11.201 4) WHEREIN IDENTICAL ISSUE WAS DELIBERATED UPON. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD DIRECTED THE AO TO MAKE VERIFICATION ABOUT T HE PAYMENTS MADE TO LOCAL AGENTS AND ALLOW THE DEDUCTION ONLY AFTER THE VERIFICATION.HE HAD AL SO DISALLOWED A SMALL PORTION OF COMMISSION PAYMENT MADE TO FOREIGN AGENT.WE FIND THAT IN THE C ASE OF EON TECH.P.LTD.(343ITR366)THE HONBLE DELHI HIGH COURT HAS DEALT WITH THE ISSUE.F ACTS OF THE CASE WERE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT O F SOFTWARE. DURING THE PREVIOUS YEAR RELEVANT TO THE AY.2007-08, THE ASSESSEE PAID COMMI SSION TO ITS PARENT COMPANY IN THE U. K. ON THE SALES AND AMOUNTS REALIZED ON EXPORT CONTRACTS PROCURED BY IT FOR THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE U.K.COMPANY HAD A BUSINESS CO NNECTION IN INDIA AND THAT COMMISSION INCOME HAD ACCRUED AND ARISEN IN INDIA WHEN CREDIT ENTRIES WERE MADE IN THE BOOKS OF THE ASSESSEE IN FAVOUR OF THE U. K. COMPANY AND THE INC OME TOWARDS COMMISSION WAS RECEIVED IN INDIA.HE HELD THAT THE ASSESSEE WAS LIABLE TO DEDUC T TAX AT SOURCE AND AS THERE WAS FAILURE TO DO SO, DISALLOWED THE EXPENDITURE UNDER SECTION 40(A)( IA) OF THE ACT.THE FAA RELIED UPON CIRCULAR NO. 23, DATED JULY 23, 1969, AND CIRCULAR NO. 786, DATED FEBRUARY 7, 2000, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, AND HELD THAT BUSINESS CONN ECTION WAS NOT ESTABLISHED.THE TRIBUNAL UPHELD HIS DECISION.DIMSSING THE APPEAL FILED BY TH E DEPARTMENT,THE HONBLE HIGH COURT HELD AS UNDER: THE ASSESSING OFFICER HAD NOT DEALT WITH OR EXAMINE D WHETHER THE COMMISSION INCOME ACCRUED OR AROSE DIRECTLY OR INDIRECTLY FROM ANY BUSINESS C ONNECTION IN INDIA BUT HAD MERELY RECORDED THAT THE PAYMENT MADE TO THE U. K. COMPANY WAS TAXA BLE IN INDIA BECAUSE OF ITS BUSINESS CONNECTION. THE ASSESSING OFFICER DID NOT ELABORAT E OR HAD NOT DISCUSSED ON WHAT BASIS HE HAD COME TO THE CONCLUSION THAT BUSINESS CONNECTION A S ENVISAGED UNDER SECTION 9(1)(I) EXISTED. THE ASSESSEE HAD SUBMITTED THAT THE U. K. COMPANY W AS A NON-RESIDENT COMPANY AND DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE U. K. COM PANY WAS NOT RENDERING ANY SERVICE OR PERFORMING ANY ACTIVITY IN INDIA ITSELF. THESE FACT S WERE NOT AND COULD NOT BE DISPUTED. THE STAND OF THE REVENUE WAS CONTRARY TO THE TWO CIRCULARS IS SUED BY THE CBDT IN WHICH IT WAS CLEARLY HELD THAT WHEN A NON-RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY NO PART OF HIS INCOME ARISES IN INDIA, AND SINCE PAYMENT WAS REMITTED DIRECTLY ABROAD, MER ELY BECAUSE AN ENTRY IN THE BOOKS OF ACCOUNT WAS MADE, IT DID NOT MEAN THAT THE NON-RESIDENT HAD RECEIVED ANY PAYMENT IN INDIA. THIS FACT ALONE DID NOT ESTABLISH BUSINESS CONNECTION. IN CIR CULAR NO. 786, DATED FEBRUARY 7, 2000, IT HAD BEEN STATED THAT IN SUCH CASES, THE INDIAN ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT FROM THE COMMISSION AND OTHE R RELATED CHARGES PAYABLE TO SUCH A NON- RESIDENT HAVING RENDERED SERVICE OUTSIDE INDIA. ( EMPHASIS SUPPLIED ).THE ASSESSING OFFICER DID NOT MAKE OUT A CASE OF BUSINESS CONNECTION AS STIPU LATED IN SECTION 9(1)(I) OF THE ACT. HE HAD NOT MADE ANY FOUNDATION OR BASIS FOR HOLDING THAT THERE WAS BUSINESS CONNECTION AND, THEREFORE, SECTION 9(1)(I) OF THE ACT WAS APPLICABLE. THE APPE LLATE AUTHORITIES, ON THE BASIS OF MATERIAL ON RECORD, HAD RIGHTLY HELD THAT BUSINESS CONNECTION WAS NOT ESTABLISHED. ITA NO.2503/ 14-BENI IMPEX(10-11) 3 WE WOULD ALSO LIKE TO REFER TO THE DECISION OF INDO INDUSTRIES LTD.(SUPRA) WHEREIN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT TH E ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO,CONFIRMING HIS ORDER,WE DECIDE E FFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER,2015. 9, ,2015 SD/- SD/- ( / SHAKTIJIT DEY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 09.10.2015 . . . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.