THE DCIT, Circle-4, Ahmedabad V. GHCL Limited, Ahmedabad

ITA 2589/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6070 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 26-04-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH (BEFORE SHRI R.P. TOLANI, VICE PRESIDE NT & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 2589/AHD/2013 (ASSESSMENT YEAR: 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, AHMEDABAD V/S GHCL LIMITED GHCL HOUSE, OPP. PUNJABI HALL, NAVRANGPURA, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACG5609C APPELLANT BY : SHRI BYOMKESH PANDA, SR. D .R. RESPONDENT BY : SHRI S.N. SOPARKAR & PARIN S HAH ( )/ ORDER DATE OF HEARING : 26 -04-201 7 DATE OF PRONOUNCEMENT : 28 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE REVENUE HAS QUESTIONED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-XXI, AHMEDABAD DATED 19.09.2013 P ERTAINING TO A.Y. 2005- 06. ITA NO. 2589 /AHD/2013 . A.Y.2005-06 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 143.46 LACS DISALLOWED BY THE A .O. U/S. 40(A)(IA) OF THE ACT. 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS PAID RS. 143.46 LACS AS EXPOR T COMMISSION IN FOREIGN CURRENCY. THE A.O. WAS OF THE OPINION THAT THE PROV ISIONS OF SECTION 195 OF THE ACT SQUARELY APPLY ON SUCH PAYMENT. SINCE NO TA X WAS DEDUCTED AT SOURCE, THE A.O. WAS OF THE FIRM BELIEF THAT THE SA ME IS DISALLOWABLE U/S. 40(A)(IA) OF THE ACT. 4. THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE COMMIS SION PAYMENT OF RS. 143.46 LACS SHOULD NOT BE DISALLOWED AS NO TAX HAD BEEN DEDUCTED AT SOURCE. THE ASSESSEE FILED ITS REPLY AND POINTED O UT THAT THE PAYMENTS WERE MADE OUTSIDE INDIA TO NON-RESIDENTS FOR SERVIC ES RENDERED OUTSIDE INDIA AND, THEREFORE, THE AMOUNTS WERE NOT ACCRUING OR ARISING IN INDIA. STRONG RELIANCE WAS PLACED UPON CIRCULAR NO. 786 DA TED 07.02.2000 STATING THAT TAX IS NOT DEDUCTIBLE ON COMMISSION IN FOREIGN CURRENCY AS THE SAME WERE PAID OUTSIDE INDIA IN RESPECT OF SERVICES REND ERED OUTSIDE INDIA. 5. THE CONTENTION OF THE ASSESSEE DID NOT FIND ANY FAV OUR FROM THE A.O. WHO COMPLETED THE ASSESSMENT BY DISALLOWING 143.46 LACS U/S. 40(A)(IA) OF THE ACT. ITA NO. 2589 /AHD/2013 . A.Y.2005-06 3 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED ITS CONTENTION. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUC T TAX AT SOURCE U/S. 195 OF THE ACT. SINCE THE CBDT CIRCULAR NO. 786 DATED 0 7.02.2000 WAS OPERATIVE, WHEN PAYMENT OF COMMISSION WAS MADE. THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE IMPUGNED DISALLOWANCE. 8. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. THE LD . D.R. STRONGLY RELIED UPON THE FINDINGS OF THE A.O. THE LD. SENIOR COUNSEL DRE W OUR ATTENTION TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT O F GUJARAT IN THE CASE OF ABM STEELS PVT. LTD. IN SPECIAL CIVIL APPLICATION N O. 3777 OF 2011. 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FAC TS IN ISSUES BEFORE US. IT IS NOT IN DISPUTE THAT THE COMMISSION HAS BEEN PAID IN FOREIGN CURRENCY TO NON-RESIDENTS FOR SERVICES RENDERED OUTSIDE INDIA. IT IS ALSO TRUE THAT CIRCULAR NO. 786 DATED 07.02.2000 WAS IN OPERATION, WHEN PAYMENT OF COMMISSION WAS MADE. THE DECISIONS OF THE HONBLE J URISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF ABM STEELS PVT. LTD . (SUPRA) SQUARELY APPLY ON THE FACTS OF THE CASE. THE RELEVANT PART OF THE SAID JUDGMENT READS AS UNDER:- 12. THE CENTRAL BOARD OF DIRECT TAXES HAVE ISSUED CIRCU LARS DATED 23RD JULY, 1969 BEING CIRCULAR NO. 23 AND ONE ANOTHER CIRCULAR NO. 786 DATED 7.2.2000, WHEREBY, IT HAS BEEN CLEARLY MENTIONED THAT SUCH EXPORT COMM ISSION IS TO BE TREATED AS OUTSIDE THE NET OF TAX DEDUCTION AT SOURCE AS LAID DOWN UNDER SECTION 195 OF THE ACT AND THEREFORE, THIS BEING THE EFFECT OF CIRCULA R HAVING BINDING EFFECT UPON THE ITA NO. 2589 /AHD/2013 . A.Y.2005-06 4 RESPONDENT-AUTHORITY, THE STEP OF REOPENING OF ASSE SSMENT COULD NOT HAVE BEEN UNDERTAKEN AND THESE CIRCULARS HAVING BEEN BROUGHT TO THE NOTICE BY THE ASSESSEE, THE ORDER COULD NOT HAVE BEEN PASSED REJE CTING THE REQUEST TO DROP THE PROCEEDINGS. THESE CIRCULARS ARE ATTACHED TO THE PE TITION COMPILATION AT PAGE NOS.40 AND 41 RESPECTIVELY AND AS SUCH, THE CONJOIN T EFFECT OF THESE CIRCULARS WOULD CLEARLY INDICATE THAT WHERE THE NON RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF INCOME ARISES IN INDIA AND SINC E THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD, IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA AND SUCH PAYMENTS WERE, THERE FORE, HELD TO BE NOT TAXABLE INCOME. THE SUBSEQUENT CIRCULAR DATED 7.2.2000 IS I N CLARIFICATION OF EARLIER CIRCULAR NO. 23 WHICH IS SPECIFICALLY CLARIFYING TH AT NO TAX IS DEDUCTIBLE UNDER SECTION 195 OF THE ACT. FOR IMMEDIATE PERUSAL, THE SAME IS REPRODUCED HEREIN AFTER. 1314. CLARIFICATION REGARDING TAXABILITY OF EXPORT COMMISSION PAYABLE TO NON- RESIDENT AGENTS RENDERING SERVICES ABROAD. '1. IN THEIR AUDIT REPORT FOR 1997-98 [D.P. NO. 79 (I.T.)] THE COMPTROLLER & AUDITOR GENERAL (C & A G) RAISED AN OBJECTION THAT THE ASSESSING OFFICER IN COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROF ESSION, IN A CASE IN MUMBAI CHARGE, HAD WRONGLY ALLOWED A DEDUCTION IN R ESPECT OF A PAYMENT TO A NON-RESIDENT WHERE TAX HAD NOT BEEN DE DUCTED AT SOURCE. THE NATURE OF THE PAYMENT OF THIS CASE WAS EXPORT C OMMISSION AND CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA . IN THE VIEW OF C & A.G. THE EXPENDITURE SHOULD HAVE BEEN DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 40(A) (I) OF THE I.T. ACT, 19 61. IT HAS COME TO THE NOTICE OF THE BOARD THAT A SIMILAR VIEW, ON THE SAM E SET OF FACTS HAS BEEN TAKEN BY SOME ASSESSING OFFICERS IN OTHER CHARGES. 2. THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 1 95 WOULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23 DATED 23RD JULY. 1969 IS DRAWN WHERE THE TAXABILITY OF 'FOREIGN AGENTS OF INDIAN EXPORTERS' WAS CONSIDERED ALONG WITH CERTAIN OTHER SPECIFIC SI TUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON-RESIDENT AGENT OP ERATES OUTSIDE THE COUNTRY, NO PART OF THIS INCOME ARISE IN INDIA. FUR THER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABOARD IT CANNOT BE HE LD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENT S WERE THEREFORE HELD TO BE NOT TAXABLE IN INDIA. THE RELEVANT SECTIONS, NAMELY SECTION 5(2) AND SECTION 9 OF THE INCOME -TAX ACT, 1961 NOT HAVING U NDERGONE ANY CHANGE ITA NO. 2589 /AHD/2013 . A.Y.2005-06 5 IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO. 2 3 STILL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUE NTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYA BLE TO A NON- RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOME S ALLOWABLE EXPENDITURE. ON BEING APPRISED OF THIS POSITION, TH E COMPTROLLER AND AUDITOR GENERAL HAVE AGREED TO DROP THE OBJECTION R EFERRED TO ABOVE'. 10. RELYING UPON THE AFOREMENTIONED DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY ERROR OR INFIRMITY I N THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 28 - 04- 20 17 SD/- SD/- (R. P. TOLANI) (N. K. BILLAIYA) VICE PRESIDENT TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 28 /04/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD