The DCIT(OSD), Circle-8, Ahmedabad V. VNKC Agrocom Pvt.Ltd., Ahmedabad

ITA 2582/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9464 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Retrospective amendment; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV , JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NO. 2582/AHD/2012 ASSESSMENT YEAR :2009-10 D.C.I.T. (OSD), CIRCLE-8, AHMEDABAD V S . M/S. VNKC AGROCOM PVT. LIMITED 106, SAMARAT ASSOCIATION, NR. CHOICE RESTAURANT, C.G. ROAD, NAVRANGPURA, AHMEDABAD 380009 PAN NO. AABC V9266F (APPELLANT) .. (RESPONDENT) ! ' / BY REVENUE SMT. SONIA KUMAR, SR. D.R. ' /BY ASSESSEE SHRI SANJAY R. SHAH, A.R. % ' /DATE OF HEARING 15.02.2016 ) ' /DATE OF PRONOUNCEMENT 19.02.2016 O R D E R PER : SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THIS APPEAL FILED BY REVENUE IS AGAINST THE ORDER O F CIT(A)-XIV, AHMEDABAD, DATED 10.08.2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: 3. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF IMPORT AND EXPORT OF AGRI PRODUCES. ASSESSEE FILED ITS RE TURN OF INCOME FOR A.Y. 2009- 10 ON 30.08.2009 DECLARING TOTAL INCOME OF RS.64,83 ,448/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S.143(3) VIDE ORDER DATED 30.08.2011 AND THE TOTAL INCOME WAS DETERMINE D AT RS.1,10,57,650/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE ITA NO.2582/AHD/2012 A.Y. 09-10 [DCIT(OSD) VS. M/S. VNKC AGROCOM PVT. LTD.] PAGE 2 THE LD. CIT(A) WHO VIDE ORDER DATED 10.08.2012 ALLO WED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), RE VENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING EFFECTIVE GROUND : 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XI V, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING DISALLOWANCE OF RS.37, 98,657/- MADE ON ACCOUNT OF FOREIGN BROKERAGE PAID TO NON-RESIDENTS U/S.40(A )(IA) OF THE ACT. 4. DURING COURSE OF ASSESSMENT PROCEEDINGS, ASSESSI NG OFFICER NOTICED THAT ASSESSEE PAID BROKERAGE OF RS.37,98,657/- AND DEBIT ED THE AMOUNT AS FOREIGN BROKERAGE EXPENDITURE AND ON WHICH ASSESSEE HAD NO T DEDUCTED TDS. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE AMOU NT NOT BE DISALLOWED ON ACCOUNT OF NON-DEDUCTION OF TDS. ASSESSEE, INTER A LIA, SUBMITTED THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS AS THE PERSON TO WHOM THE PAYMENT WAS MADE WERE NOT RESIDENTS OF INDIA WAS NOT ASSESSABLE UNDER THE INCOME TAX ACT AND THAT NO INCOME ACCRUED OR AROSE TO THEM IN INDI A. IT WAS FURTHER SUBMITTED THAT AS PER CBDT CIRCULAR NO.786 OF 7/2/2000, ASSES SEE WAS ALSO NOT REQUIRED TO DEDUCT TDS U/S.195 OF THE ACT. THE SUBMISSION O F THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. AS HE WAS OF THE VIEW THAT THE BROKERAGE WAS IN THE NATURE OF FEE FOR MANAGERIAL SERVICES THAT WAS PA ID BY THE ASSESSEE TO THE NON- RESIDENT AND THE CIRCULAR NO. 786 OF 7/2/2000, THAT WAS RELIED BY ASSESSEE FOR NON-DEDUCTION OF TAX, HAS BEEN WITHDRAWN BY CIRCULA R NO.7 OF 2009 DATED 22/10/2009. HE WAS THEREFORE OF THE VIEW THAT THE PAYMENT MADE BY THE ASSESSEE TO THE NON-RESIDENT WAS SQUARELY COVERED B Y THE PROVISIONS OF SECTION 195 OF THE ACT WHICH CALLED FOR DEDUCTION OF TAX AT THE TIME OF PAYMENT TO A NON-RESIDENT AND THE PROVISIONS OF SECTION 40(A)(I) WERE ATTRACTED WHEREVER TDS ON PAYMENT OF BROKERAGE WAS NOT MADE AT APPROPRIATE RATES. HE, ACCORDINGLY, HELD THAT SINCE ASSESSEE HAS NOT DEDUCTED THE TDS, THE AMOUNT WAS LIABLE FOR DISALLOWANCE AND ACCORDINGLY DISALLOWED RS.37,98,65 7/-. 5. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, AS SESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION BY H OLDING AS UNDER: ITA NO.2582/AHD/2012 A.Y. 09-10 [DCIT(OSD) VS. M/S. VNKC AGROCOM PVT. LTD.] PAGE 3 2.3 DECISION: I HAVE CAREFULLY PERUSED THE ORDER AND THE WRITTEN SUBMISSION FILED BY THE ID.AR OF THE APPELLANT. THE A. O. HAS MADE THE DISA LLOWANCE AS IT WAS NOTED BY HIM THAT THE APPELLANT HAS MADE PAYMENT FOR BROKERAGE A ND NO TDS HAS BEEN DEDUCTED ON THE SAME. IT WAS HELD BY HIM THAT THE FOREIGN BROKE RAGE WHICH IS PAID TO NON - RESIDENT IS COVERED BY THE PROVISIONS OF SECTION 195 AND, TH EREFORE, TAX SHOULD HAVE BEEN DEDUCTED. THE APPELLANT HAS SUBMITTED THAT SINCE TH E SERVICES HAVE BEEN RENDERED OUTSIDE INDIA BY A NON - RESIDENT PERSON, AND THE S AME IS NOT CHARGEABLE TO TAX IN INDIA AND, THEREFORE, THE TDS WAS NOT SUPPOSED TO B E DEDUCTED ON THOSE PAYMENTS. AFTER CONSIDERING THE FACTUAL ASPECTS AND THE LEGAL POSITION, IT IS NOTED THAT THE COMMISSION HAS BEEN PAID BY THE APPELLANT TO THE PE RSONS WHICH ARE NON-RESIDENTS AND IT HAS BEEN PAID FOR THE SERVICES RENDERED OUTS IDE INDIA. THE FACT IS SUPPORTED BY THE VARIOUS INFORMATION GIVEN BY THE APPELLANT AND IS UNDISPUTED. THE INFORMATION SHOW THAT THE APPELLANT HAS MADE EXPORTS TO VARIOUS COUNTRIES SUCH AS MALASYIA, PHILIPPINES, CHINA, ARGENTINA ETC. AND THE PERSONS TO WHOM THE BROKERAGE HAVE BEEN GIVEN WHICH IS SHOWN BY THE APPELLANT AS FOREIGN BR OKERAGE EXPENSES ARE ALSO NON - RESIDENTS. IN THESE CIRCUMSTANCES, THE PROVISIONS O F SECTION 9(L)(I) CANNOT BE APPLIED AS THIS INCOME CANNOT BE DEEMED TO BE THE INCOME AC CRUED OR ARISEN IN INDIA, THE APPELLANT HAS ALSO RELIED ON VARIOUS JUDGMENTS WHIC H ARE MENTIONED IN THE PARAGRAPHS WHERE ITS SUBMISSION HAVE BEEN REPRODUCE D. IT IS NOTED THAT MAJORITY OF THE JUDGMENTS ARE IN FAVOUR OF THE APPELLANT. MORE PARTICULARLY, THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TOSHOKU LIMITE D [125 ITR 525] WHERE IT HAS BEEN CLEARLY HELD BY THE HON'BLE COURT THAT THE COM MISSION AMOUNT WHICH WERE EARNED BY THE NON - RESIDENT PERSONS FOR SERVICES R ENDERED OUTSIDE INDIA CANNOT BE DEEMED TO BE INCOME WHICH HAVE EITHER ACCRUED OR AR ISEN IN INDIA U/S. 9(1)(I). ONCE THE INCOME IS NOT TAXABLE IN INDIA THE LIABILITY TO DEDUCT DOES NOT ARISE. THE A. O. HAS ALSO GIVEN A FINDING THAT IT WAS A MA NAGERIAL SERVICES WITHIN THE MEANING OF SECTION 9(L)(VI). IT IS NOTED THAT THIS ASPECT IS ALSO COVERED IN FAVOUR OF THE APPELLANT BY THE JUDGMENT OF JAIPUR ITAT IN THE CAS E OF MODERN INSULATOR LTD. [140 TTJ 715]. THE FACTS OF THE PRESENT CASE ALSO SHOW T HAT THE PAYMENT MADE IS A BROKERAGE OR THE COMMISSION AND IT CANNOT BE TAKEN AS MANAGERIAL SERVICES. THE PROVISIONS OF SECTION 40(A)(I) ARE APPLICABLE IN RE SPECT OF PAYMENTS TO NON - RESIDENT IN THE NATURE OF INTEREST, ROYALTY, FEE FOR TECHNIC AL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE ACT. ACCORDINGLY, THE PROVISIONS OF SECTI ON 40(A)(I) ARE NOT APPLICABLE IN THE CASE OF THE APPELLANT. SIMILARLY, THE BOARD'S CIRCULAR WHICH HAS BEEN WITH DRAWN VIDE CIRCULAR NO. 7 DATED 22/10/2009 WAS STILL APPLICABLE IN THE CASE O F THE APPELLANT FOR THAT YEAR. THE CIRCULAR HAS BEEN WITHDRAWN FROM 22/10/2009 WHICH I S AFTER THE PRESENT ASSESSMENT YEAR. THE APPELLANT HAS QUOTED CERTAIN JUDGMENTS WH ICH SHOW THAT THE COURTS HAVE HELD THAT THE WITHDRAWAL OF CIRCULARS DID NOT CHANG E THE SETTLED LEGAL POSITION REGARDING TDS ON FOREIGN BROKERAGE. THE JUDGMENT M ENTIONED BY THE A.O. ARE REGARDING THE RETROSPECTIVE EFFECT OF A PROVISION O N THE STATUTE AND ARE NOT IN RELATION TO THE BOARD'S CIRCULARS. THE A.O. HAS ALSO RAISED THE ISSUE THAT THE APPELLA NT HAS REMITTED THE MONEY WITHOUT DULY FOLLOWING THE PROCEDURE OF REMITTANCE. THE ISSUE, AS MENTIONED BY THE APPELLANT, HAS BEEN DEALT WITH BY HON'BLE SUPREME C OURT IN THE CASE OF GE INDIA ITA NO.2582/AHD/2012 A.Y. 09-10 [DCIT(OSD) VS. M/S. VNKC AGROCOM PVT. LTD.] PAGE 4 TECHNOLOGY CENTRE PVT. LTD. [327 ITR 456]. THE HON' BLE COURT HAS DECIDED THE CASE AFTER CONSIDERING ITS EARLIER JUDGMENT IN THE CASE OF TRANSMISSION CORPORATION OF A. P. LIMITED, WHICH IS MENTIONED BY THE A. O. THE HON 'BLE COURT HAS REJECTED THE CONTENTION THAT THE MOMENT THERE WAS A FOREIGN REMI TTANCE, THE OBLIGATION TO DEDUCT TAX WAS THERE. THE PAYER IS BOUND TO DEDUCT TAX AT SOURCE ONLY IF THE AMOUNT IS CHARGEABLE TO TAX IN INDIA. FURTHER, THE PROCEDURE OF REMITTANCE HAS NO RELATION WITH THE LIABILITY OF DEDUCTING THE TAX IN THE INCOME TA X ACT. IN VIEW OF THE PRECEDING DISCUSSION, I AM OF THE CO NSIDERED OPINION THAT THE APPELLANT WAS NOT BOUND TO DEDUCT TAX ON THE FOREIG N BROKERAGE PAID DURING THE YEAR. THE DISALLOWANCE MADE BY THE A. O. IS, THEREFORE, D IRECTED TO BE DELETED AND THE GROUND OF APPEAL IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 6.1 BEFORE US, LD. D.R. SUPPORTED THE ORDER OF ASSE SSING OFFICER. LD. A.R., ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND LD. CIT(A). HE ALSO PLACED RELIANCE ON THE DEC ISION OF AHMEDABAD TRIBUNAL IN CASE OF ITO VS. RAMESHBHAI RANCHHODBHAI PATEL I N ITA NO.298/AHD/2013, ITAT, DECISION OF ITAT, JAIPUR BENCH IN CASE OF ACI T VS. MODERN INSULATOR LTD. IN [2011] 140 TTJ (JP) 715 AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CEAT INTERNATIONAL VS. CIT REPORTE D IN [1999] 103 TAXMAN 153 (BOM.). HE THUS SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS ABOUT DISALLOWANCE OF FOREIGN COMMISSION PAYMENT ON ACCOUNT OF NON-DEDUCTION OF TDS. WE FIN D THAT LD. CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT THE PAYMENTS WERE MADE TO NON- RESIDENT FOR THE SERVICES RENDERED BY THEM OUTSIDE INDIA AND THE PROVISIONS OF SECTION 9(1)(I) OF THE ACT CANNOT BE APPLIED AS THE INCOME CANNOT BE DEEMED TO BE INCOME ACCRUED OR ARISING TO THE NON-RESIDENTS I N INDIA AND THAT ONCE THE INCOME IS NOT TAXABLE IN INDIA, THE LAW OF DEDUCTIN G TDS DOES NOT ARISE. HE FURTHER AFTER RELYING ON THE DECISION OF HONBLE IT AT, JAIPUR BENCH IN CASE OF ACIT VS. MODERN INSULATOR LTD. (SUPRA) HAS GIVEN A FINDING THAT THE PAYMENT ITA NO.2582/AHD/2012 A.Y. 09-10 [DCIT(OSD) VS. M/S. VNKC AGROCOM PVT. LTD.] PAGE 5 MADE AS BROKERAGE AND COMMISSION CANNOT BE CONSIDER ED AS MANAGERIAL SERVICES AND THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT A RE NOT APPLICABLE TO THE PAYMENT OF BROKERAGE. HE HAS FURTHER NOTED THAT TH E BOARDS CIRCULAR THAT WAS WITHDRAWN BY CIRCULAR NO.7 DATED 22.10.2009 WAS APP LICABLE IN THE YEAR UNDER CONSIDERATION WHEN THE PAYMENT WAS MADE BY ASSESSEE AND THAT IT WAS WITHDRAWN FROM 22.10.2009 I.E. AFTER PRESENT ASSESS MENT YEAR. HE AFTER RELYING ON VARIOUS DECISIONS CITED IN THE ORDER HAD DELETED THE ADDITION MADE BY A.O. BEFORE US, REVENUE HAS NOT BROUGHT ON RECORD ANY MA TERIAL TO CONTROVERT THE FINDINGS OF LD. CIT(A) NOR HAS POINTED TO ANY CONTR ARY BINDING DECISION. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO I NTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS, THE GROUND OF REVENUE IS DISMISSED . 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 19/02/201 6 SD/- SD/- ( SHAILENDRA KUMAR YADAV ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD: DATED. 19/02/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- *+ , -. / APPELLANT /+ 01-. / RESPONDENT 2+ 345 6 / CONCERNED CIT 4+ 6- , / CIT (A) 9+ :; < 045 , 45) = 3 / DR, ITAT, AHMEDABAD 6+ < ?@ A B / GUARD FILE. BY ORDER/ ,/= ,! , 45) = 3