The ITO, Ward-2(1)(1), Ahmedabad V. M/s. Excel Chemicals India Pvt. Ltd., Ahmedabad

ITA 2570/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8329 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 07-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Advance ruling
• Section: 143(3)

Judgement Text

ITA NO.2570/AHD/2016 & C.O. NO.207/AHD/2016 ASSESSMENT YEAR: 2013-14 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO.2570/AHD/2016 ASSESSMENT YEAR: 2013-14 INCOME TAX OFFICER, WARD - 2(1)(1), AHMEDABAD. .....APPELLANT VS. EXCEL CHEMICALS INDIA PVT. LTD., .RESPONDENT A-303, SAFAL PEGASUS TOWERS, ANANDNAGAR ROAD, PRAHLADNAGAR ROAD, AHMEDABAD 380 051. [PAN : AABCE 7150 P] C.O. NO.207/AHD/2016 (IN ITA NO.2570/AHD/2016) ASSESSMENT YEAR: 2013-14 EXCEL CHEMICALS INDIA PVT. LTD., .....APPELLANT A-303, SAFAL PEGASUS TOWERS, ANANDNAGAR ROAD, PRAHLADNAGAR ROAD, AHMEDABAD 380 051. [PAN : AABCE 7150 P] VS. INCOME TAX OFFICER, WARD - 2(1)(1), AHMEDABAD. .RESPONDENT APPEARANCES BY PRASOON KABRA FOR THE REVENUE KARAN SHAH FOR THE ASSESSEE HEARING CONCLUDED ON: 14.05.2018 ORDER PRONOUNCED ON : 15.05.2018 O R D E R PER PRAMOD KUMAR, AM: 1. THIS APPEAL, FILED BY THE ASSESSING OFFICER, CHA LLENGES CORRECTNESS OF THE LEARNED CIT(A)S ORDER DATED 12 TH JULY, 2016, IN THE MATTER OF ASSESSMENT UNDER SECT ION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEA R 2013-14. ITA NO.2570/AHD/2016 & C.O. NO.207/AHD/2016 ASSESSMENT YEAR: 2013-14 PAGE 2 OF 5 2. GRIEVANCE OF THE APPELLANT IS AS FOLLOWS: THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DE LETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXPORT COMMISSION OF R S.98,08,408/- PAID TO OVERSEAS AGENTS U/S.40(A)(I) OF THE ACT WITHOUT PRO PERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D. 3. WHEN THIS APPEAL CAME UP FOR HEARING, LEARNED RE PRESENTATIVES FAIRLY AGREED THAT THE ISSUE IN APPEAL IS COVERED, IN FAVOUR OF THE AS SESSEE AND IN ASSESSEES OWN CASE, BY A CO-ORDINATE BENCHS DECISION DATED 29.07.2016, WHEREIN THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTS OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 5. THE BASIC CONTENTION OF THE ASSESSING OFFICER IS THAT IN VIEW OF THE SCOPE OF DEEMING FICTION UNDER SECTION 9(1)(I), WHICH INT ER ALIA HOLDS THAT ANY INCOME 'ARISING DIRECTLY OR INDIRECTLY FROM ANY BUSINESS C ONNECTION IN INDIA' WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA, READ WITH THE S COPE OF CHARGING SECTION 5(2), WHICH ENABLES TAXABILITY OF A NON-RESIDENT IN RESPE CT OF 'INCOME ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE, IN INDIA,, IN COME ARISING IN THE HANDS OF THE NON-RESIDENT COMMISSION AGENT IS TAXABLE IN INDIA. WHAT HE OVERLOOKS, HOWEVER, IS THE IMPACT OF EXPLANATION 1 TO SECTION 9 (1)(I) WHICH STATES THAT 'FOR THE PURPOSE OF THIS CLAUSE [I.E. 9(1)(I)], IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ON LY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED O UT IN INDIA'. ONLY IF HE WAS TO TAKE INTO ACCOUNT THE SCOPE OF EXPLANATION 1 TO SEC TION 9(1)(I), COUPLED WITH THE FACT THAT ADMITTEDLY NO PART OF OPERATIONS OF THE N ON-RESIDENT COMMISSION AGENT WERE CARRIED OUT IN INDIA, HE WOULD HAVE REALIZED T HAT EVEN THOUGH DEEMING FICTION UNDER SECTION 9(1)(I) IS TRIGGERED ON THE F ACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT'S BUSINESS CONNECTION IN INDIA, IT HAS NO IMPACT ON TAXABILITY IN THE HANDS OF COMMISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPERATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE EXPLANATION 1 TO SECTION 9(1)(I) COMES INTO PLAY. THE SEEMINGLY ERUDITE ANALYSIS BY THE ASSESSI NG OFFICER IS BASED ON A HALF- BAKED LEGAL THEORY, AND THE CONCLUSIONS, THEREFORE, CLEARLY FALLACIOUS. 6. AS FOR THE AAR RULING IN THE CASE OF SKF BOILERS AND DRIERS (P.) LTD. (SUPRA), ON WHICH SO MUCH RELIANCE HAS BEEN PL ACED BY THE ASSESSING OFFICER, WE FIND THAT THIS DECISION MERELY FOLLOWS THE EARLIER RULING IN THE CASE OF RAJIV MALHOTRA (SUPRA) WHICH, IN OUR CONSIDERED VIEW, DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXPLANATION 1 TO SECTION 9(1) (I) PROPERLY. THAT WAS A CASE IN WHICH THE NON-RESIDENT COMMISSION AGENT WORKED F OR PROCURING PARTICIPATION BY OTHER NON-RESIDENT ENTITIES IN A FOOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE AGENT HAS NOT CARRIED O UT ANY BUSINESS OPERATIONS IN INDIA, THE COMMISSION AGENT WAS NOT CHARGEABLE TO T AX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOU RCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULING, INTER ALIA, OPINED THAT 'NO DOUBT THE AGENT RENDERS SERVICES ABROAD AND PURSUES AND SOLICITS EXHIBITORS THERE IN THE TERRIT ORY ALLOTTED TO HIM, BUT THE RIGHT TO ITA NO.2570/AHD/2016 & C.O. NO.207/AHD/2016 ASSESSMENT YEAR: 2013-14 PAGE 3 OF 5 RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EX HIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA AND THAT TH E COMMISSION INCOME WOULD, THEREFORE, BE TAXABLE UNDER SECTION 5(2)(B) READ WI TH SECTION 9(1)(I) OF THE ACT'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT THE FACT THAT THE AGENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICIT ING PARTICIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRR ELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHEN NO OPERATIONS OF THE BUSINESS OF COMMISSION AG ENT IS CARRIED ON IN INDIA, THE EXPLANATION 1 TO SECTION 9(1)(I) TAKES THE ENTI RE COMMISSION INCOME FROM OUTSIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1 )(I), AND, IN EFFECT, OUTSIDE THE AMBIT OF INCOME 'DEEMED TO ACCRUE OR ARISE IN I NDIA' FOR THE PURPOSE OF SECTION 5(2)(B). THE POINT OF TIME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE S COPE OF EXPLANATION 1 TO SECTION 9(1)(I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT O F THE SITUATION THAT WE ARE IN SEISIN OF. THE REVENUE'S CASE BEFORE US HINGES ON T HE APPLICABILITY OF SECTION 9(1)(I) AND, IT IS, THEREFORE, IMPORTANT TO ASCERTA IN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAXED BY EXPLANATION 1 TO SECTION 9(1)(I). WHEN WE EXAMINE THINGS FROM THIS PERSPECTIVE, THE INEVITABL E CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMI SSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOME OF THE COMMISSION AGEN T CAN BE BROUGHT TO TAX IN INDIA. IN THIS VIEW OF THE MATTER, VIEWS EXPRESSED BY THE HON'BLE AAR, WHICH DO NOT FETTER OUR INDEPENDENT OPINION ANYWAY IN VIEW O F ITS LIMITED BINDING FORCE UNDER S. 245S OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO BE GUIDED BY THE SAME. THE STAND OF THE REVENUE, HOWEVER, IS THAT TH ESE RULINGS, BEING FROM SUCH A HIGH QUASI-JUDICIAL FORUM, EVEN IF NOT BINDING, C ANNOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEAST HAVE PERSUA SIVE VALUE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WITH UTMOST CARE AN D DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE AUTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT WITHOUT SLIGHTEST HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULIN GS. 7. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSIDER ED VIEW, LEARNED CIT (A) WAS INDEED JUSTIFIED IN HOLDING THAT GIVEN THE UNDI SPUTED AND UNCONTROVERTED FACTS OF THIS CASE, THE NON-RESIDENT COMMISSION AGE NTS WERE NOT TAXABLE IN INDIA IN RESPECT OF THEIR COMMISSION EARNINGS FROM ORDERS PROCURED ABROAD. 8. IT IS ALSO NOW WELL SETTLED IN LAW THAT WHEN THE PAYMENT MADE TO A NON- RESIDENT DOES NOT HAVE AN ELEMENT OF INCOME, TAX DE DUCTION SOURCE REQUIREMENTS UNDER SECTION 195(2) DO NOT COME INTO PLAY AT ALL. HON'BLE SUPREME COURT, IN THE CASE OF G E INDIA TECHNOLOGY CENTRE (P.) LTD. V. CI T [2010] 327 ITR 456/193 TAXMAN 234/7 TAXMANN.COM 18 , HAS INTER ALIA OBSERVED AS FOLLOWS: IN OUR VIEW, SECTION 195(2) IS BASED ON THE 'PRINCI PLE OF PROPORTIONALITY'. THE SAID SUB-SECTION GETS ATTRACTED ONLY IN CASES WHERE THE PAYMENT MADE IS A COMPOSITE PAYMENT IN WHICH A CERTAIN PROPORTION OF PAYMENT HAS AN ELEMENT OF 'INCOME' CHARGEABLE TO TAX IN INDIA. IT IS IN TH IS CONTEXT THAT THE SUPREME COURT STATED, 'IF NO SUCH APPLICATION IS FILED, INC OME-TAX ON SUCH SUM IS TO BE DEDUCTED AND IT IS THE STATUTORY OBLIGATION OF THE PERSON RESPONSIBLE FOR PAYING SUCH 'SUM' TO DEDUCT TAX THEREON BEFORE MAKI NG PAYMENT. HE HAS TO DISCHARGE THE OBLIGATION TO TDS'. IF ONE READS THE OBSERVATION OF THE SUPREME COURT, THE WORDS 'SUCH SUM' CLEARLY INDICAT E THAT THE OBSERVATION REFERS TO A CASE OF COMPOSITE PAYMENT WHERE THE PAY ER HAS A DOUBT ITA NO.2570/AHD/2016 & C.O. NO.207/AHD/2016 ASSESSMENT YEAR: 2013-14 PAGE 4 OF 5 REGARDING THE INCLUSION OF AN AMOUNT IN SUCH PAYMEN T WHICH IS EXIGIBLE TO TAX IN INDIA. IN OUR VIEW, THE ABOVE OBSERVATIONS OF TH IS COURT IN TRANSMISSION CORPORATION CASE (SUPRA) WHICH IS PUT IN ITALICS HA S BEEN COMPLETELY, WITH RESPECT, MISUNDERSTOOD BY THE KARNATAKA HIGH COURT TO MEAN THAT IT IS NOT OPEN FOR THE PAYER TO CONTEND THAT IF THE AMOUNT PA ID BY HIM TO THE NON- RESIDENT IS NOT AT ALL 'CHARGEABLE TO TAX IN INDIA' , THEN NO TDS IS REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT. THIS INTERPRETATION OF THE HIGH COURT COMPLETELY LOSES SIGHT OF THE PLAIN WORDS OF SECTIO N 195(1) WHICH IN CLEAR TERMS LAYS DOWN THAT TAX AT SOURCE IS DEDUCTIBLE ON LY FROM 'SUMS CHARGE ABLE' UNDER THE PROVISIONS OF THE I.T. ACT, I.E., C HARGEABLE UNDER SECTIONS 4, 5 AND 9 OF THE I.T. ACT. (EMPHASIS BY UNDERLINING SUP PLIED BY US) 9. CLEARLY, THEREFORE, FOR APPLICATION OF SECTION 19 5, IT IS SINE QUA NON THAT THE PAYMENT TO NO-RESIDENT MUST HAVE AN ELEMENT OF INCO ME LIABLE TO BE TAXED UNDER THE INDIAN INCOME TAX ACT, 1961. ON THE FACTS OF TH IS CASE, AS WE HAVE ALREADY CONCLUDED, NO PART OF THE REMITTANCE TO THE COMMISS ION AGENT WAS TAXABLE IN INDIA. THE ASSESSEE WAS, THEREFORE, NOT UNDER ANY O BLIGATION, ON THE FACTS OF THIS CASE, TO DEDUCT ANY TAX AT SOURCE FROM THE COMMISSI ON PAYMENTS TO THE NON- RESIDENTS. SINCE THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE UNDER SECTION 4 0(A)(I) CEASES TO HOLD GOOD IN LAW. LEARNED CIT (A) WAS, THEREFORE, QUITE JUSTI FIED IN DELETING THE IMPUGNED DISALLOWANCE. WE UPHOLD HIS ACTION, AND DISMISS THE GRIEVANCE RAISED BY THE ASSESSING OFFICER. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN ASSESSEES OWN CASE FOR IMMEDIATELY PRECED ING ASSESSMENT YEAR, AS ABOVE. WE, THEREFORE, CONFORM THE ORDER OF THE LD. CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. IN THE RESULT, THE APPEAL IS DISMISSED. 6. AS FOR THE CROSS OBJECTION FILED BY THE ASSESSEE , LEARNED COUNSEL FOR THE ASSESSEE FAIRLY ACCEPTED THAT IT MERELY SUPPORTS TH E ORDER OF THE LD. CIT(A) AND DOES NOT REQUIRE ANY INDEPENDENT ADJUDICATION BY US. THE CR OSS OBJECTION IS ALSO THUS DISMISSED. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE AND T HE CROSS OBJECTION FILED BY THE ASSESSEE, BOTH ARE DISMISSED. PRONOUNCED IN THE OPE N COURT TODAY ON THE 15 TH MAY, 2018. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEM BER) DATED: 15 TH MAY, 2018 PBN/* ITA NO.2570/AHD/2016 & C.O. NO.207/AHD/2016 ASSESSMENT YEAR: 2013-14 PAGE 5 OF 5 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD