Sri. subbaraman Subramanian, Bangalore V. ACIT, Bangalore

ITA 26/BANG/2012

• Counselvise Citation: 2621114 RSA 2012
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-11-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 10-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIJOY KUMAR
• Assessee Lawyers: RAGHAVENDRA CHAK RAVARTHI
• Keywords: Business income; Services rendered outside India; Deemed to accrue or arise in india; Advance ruling
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.26/BANG /2012 (ASST. YEAR - 2008-09) S.P 136/ B/2012 SRI SUBBARAMAN SUBRAMANIAN, 18-A, 1 ST CROSS, R.M.V EXTENSION, BANGALORE. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BANGALORE. . RESPONDENT APPELLANT BY : SHRI RAGHAVENDRA CHAKRAVARTHI, C .A RESPONDENT BY : SHRI BIJOY KUMAR PANDA, ADDL. CIT DATE OF HEARING : 26-11-2012 DATE OF PRONOUNCEMENT : -12-2012 O R D E R P MADHAVI DEVI, JUDICIAL MEMBER THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) III AT BANGA LORE DATED 29- ITA NO.26/B/12 2 11-2011. THE APPEAL ARISES OUT OF THE ASSESSMENT C OMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. S.P NO.136/BANG/2012 2. STAY PETITION IS FILED BY THE ASSESSEE SEEKING S TAY OF THE OUTSTANDING DEMAND OF RS.13,52,063/-. AS THE APPEAL IS HEARD AND DISPOSED OF BY THE ORDER EVEN DATED, THE STAY APPLI CATION IS DISMISSED. ITA N0.26/BANG/2012 3. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) 1) SUSTAINING THE DISALLOWANCE MADE BY THE AO OF I) THE COMMISSION PAID TO M/S MISC. MALDIVES PVT. L TD., FOR THE SERVICES RENDERED BY IT IN RESPECT OF RECEIVING THE MATERIALS, WEIGHING THEM AND GETTING THEM CLEARED FROM CUSTOMS AND DELIVERING THEM TO CUSTOMERS OF THE ASSESSEE AT MA LDIVES, ITA NO.26/B/12 3 HOLDING THAT IT HAS THE CHARACTER OF TECHNICAL SERV ICES UNDER EXPLANATION TO SEC. 9[1][VII] OF THE ACT, WARRANTIN G DEDUCTION OF TAX AT SOURCE. II) COMMISSION PAID TO ONE MR. HUSSAIN SHIHAM, WHO DIRECTLY RECEIVES THE PERSONS SENT BY THE ASSESSEE IN HIS TO URISTS BUSINESS AT MALDIVES AND PUTS THEM INTO THE RESORTS /HOTELS DIRECTLY AT MALDIVES ON THE GROUND THAT IT AMOUNTS TO TECHNICAL SERVICES UNDER EXPLANATION TO SEC. 9[1][VIII] OF TH E ACT, WARRANTING DEDUCTION OF TAX. 2) THE ASSESSE IS ALSO AGGRIEVED BY THE LEVY OF INTERE ST U/S 234B AND 234C OF THE INCOME-TAX ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, AN INDIVIDUAL FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 RETURNING A TOTAL INCOME OF RS.56,29,610/-. DURING THE ASSESSM ENT PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, THE AO NOTICED TH AT THE ASSESSEE HAS THE FOLLOWING TWO PROPRIETARY CONCERNS. 1) GEMINI INTERNATIONAL 2) GEMINI TOURS AND TRAVELS ITA NO.26/B/12 4 5. HE FOUND THAT DURING THE YEAR GEMINI INTERNATIO NAL MADE PAYMENT OF RS.14,93,215/- TO A NON RESIDENT, MISC. MALDIVES PVT. LTD. TOWARDS COMMISSION FEES AND GEMINI TOURS AND TRAVELS ALSO HAS MADE THE PAYMENT OF RS.14,26,174/- TO A NON RES IDENT MR. HUSSAIN SHIHAM, MALDIVES TOWARDS TOURIST HANDLING C HARGES. HE HAS OBSERVED THAT TAX HAS NOT BEEN DEDUCTED AT SOURCE I N RESPECT OF THE ABOVE PAYMENTS AS REQUIRED U/S 195 OF THE ACT. HE, THEREFORE, INTENDED TO INVOKE THE PROVISION OF SEC. 40A(I) OF THE INCOME-TAX ACT AND, THEREFORE, PROCEEDED TO EXAMINE IF ANY INCOME HAD ACCRUED TO THE PAYEE. HE EXAMINED THE APPLICATION OF PROVISION OF SEC. 9[1][VII] AND EXPLANATION TO SUB SEC. (2) OF SEC. 9 OF THE INCOME -TAX ACT AND HELD THAT THE INCOME HAS ACCRUED TO THE PAYEE FROM THE P AYMENTS MADE BY THE ASSESSEE. SINCE ACCORDING TO THE AO, THE INCOM E HAS ACCRUED TO THE PAYEE FROM THE PAYMENTS OF THE ASSESSEE AND NO TDS WAS MADE, HE APPLIED THE PROVISIONS OF SEC.40A(I) OF THE ACT AND DISALLOWED THE SAID EXPENDITURE OF COMMISSION/FEES FOR TECHNICAL S ERVICES AND ADDED BACK A SUM OF RS.29,19,389/- TO THE RETURNED INCOME OF THE ASSESSEE AND COMPLETED THE ASSESSMENT ACCORDINGLY. ITA NO.26/B/12 5 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) CONTENDING THAT BOTH M/S MISC. MALDIVES PVT. LTD. , AND MR. HUSSAIN SHIHAM ARE NON RESIDENTS AND ARE RENDERING SERVICES OUT SIDE INDIA AND ALSO THAT THE BILLS ARE RAISED OUTSIDE INDIA AND, T HEREFORE, THE PAYMENTS MADE TO THEM ARE NOT SUBJECT TO TAX IN INDIA. HE P LACED RELIANCE UPON THE PROVISIONS OF SUB. SEC. 2 OF SEC. 5 TO THE EFFE CT THAT A NON RESIDENT IS LIABLE TO BE CHARGED WITH INCOME-TAX IN INDIA ON LY IF SUCH NON- RESIDENT RENDERS SERVICES IN INDIA OR THROUGH HIS A GENTS IN INDIA. HE SUBMITTED THAT THE PROVISIONS OF SEC. 194 AND 195 A RE NOT APPLICABLE TO ANY SUCH PAYMENTS AS THE SERVICES ARE RENDERED OUTS IDE INDIA BY THE NON RESIDENTS. IN SUPPORT OF THIS CONTENTION, HE P LACED RELIANCE UPON THE DECISION OF AUTHORITY FOR ADVANCE RULING IN JT. ACCREDIATION SYSEM OF AUSTRALIA AND NEW ZEALAND REPORTED IN 326 ITR 487. AS REGARDS HANDLING CHARGES, THE ASSESSEE ALSO SUBMITT ED THAT M/S GEMINI TOURS AND TRAVELS IS DOING BUSINESS AS TOURING OPER ATOR AND THE ASSESSEE HAS UNDERTAKEN TO PROVIDE TO ITS CUSTOMERS STAY AT VARIOUS RESORTS AND HOTELS AT MALDIVES AND THESE TOURISTS A RE RECEIVED BY MR. HUSSAIN SHIHAM, WHO PUTS THEM INTO THEIR HOTELS AN D RESORTS AND ENSURES LIASONING WITH THE HOTELS ETC. FOR THE SE RVICES RENDERED BY HIM AT MALDIVES, A SUM OF $15 PER PERSON WAS BEING PAID W HICH IS RETAINED BY THE PERSON ENTITLED TO SUCH COMMISSION AND ONLY THE BAL ANCE IS PAID TO THE ASSESSEE. ITA NO.26/B/12 6 7. HE SUBMITTED THAT THE COMMISSION AND HANDLING CH ARGES ARE PAID OUTSIDE INDIA TO THE NON-RESIDENTS AND, THEREF ORE, THE PROVISIONS OF SEC. 194H ARE NOT APPLICABLE TO THE ASSESSEE. I T WAS ALSO SUBMITTED THAT TDS IS PAYABLE ONLY IF THE INCOME ACCRUES TO N ON RESIDENTS IN INDIA AND, AS THERE IS NO INCOME ACCRUING OR ARISIN G TO THE NON-RESIDENT IN INDIA, THE PROVISIONS OF SEC. 194 ARE NOT APPLIC ABLE. 8. THE CIT(A) AFTER CONSIDERING THE ASSESSEES SUBM ISSIONS EXAMINED WHETHER THE SERVICES RENDERED BY ASSESSEES S ASSOCIATES AND AGENTS AT MALDIVES CAN BE CATEGORIZED AS TECHNICAL SERVICES. HE HELD THAT THE PAYMENTS BY THE PURCHASER OF THE ITEMS ARE MADE TO THE AGENTS AT MALDIVES AND THEY REMIT THE BALANCE AMOUNT TO TH E ASSESSEE AFTER DEDUCTING THEIR DUES AND IN THE CASE OF TOUR OPERAT ORS, THE LOCAL ASSOCIATES RECEIVES THE ASSESSEES CLIENTS AT THE A IRPORT AND FACILITATE THEIR STAY AT THE RESORTS/HOTELS AND A FEE OF $15 P ER CLIENT IS COLLECTED DIRECTLY FROM THE CLIENTS AT MALDIVES AS HANDLING C HARGES. HE ALSO HAS TAKEN INTO CONSIDERATION THAT THE SERVICES ARE REND ERED OUTSIDE INDIA AND THE INCOMES ARE EARNED AND RECEIVED/PAID OUTSID E INDIA. HOWEVER OBSERVING THAT THESE ACTIVITIES FALL SQUARELY UNDER THE DEFINITION OF TECHNICAL SERVICES BEING IN THE NATURE OF CONSUL TANCY AND MANAGERIAL SERVICES REQUIRING DOMAIN KNOWLEDGE AND TECHNICAL ITA NO.26/B/12 7 EXPOSURE, HELD THAT DEDUCTION OF TAX U/S 195 IS REQ UIRED ON THESE PAYMENTS AS PER THE PROVISIONS OF SEC. 9(1)(VII) AN D EXPLANATION THERETO. HE, THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY THE AO AND THE ASSESEE IS IN SECOND APPEAL BEFORE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI RAGHAV ENDRA CHAKRAVARTHI, WHILE REITERATING THE ASSESSEES SUBM ISSIONS BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE INCOME EARNED BY THE NON- RESIDENT IS THEIR BUSINESS INCOME AND IS NOT FEE S FOR TECHNICAL SERVICES AS HELD BY THE AO AND THE CIT(A). HE SUB MITTED THAT BUSINESS INCOME EARNED BY THE NON- RESIDENTS CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA ONLY IF IT WORKS THROUGH A PE OR BUSINESS CONNECTION IN INDIA AND THESE NON-RESIDENTS DO NOT HAVE ANY PE /BUSINESS CONNECTION IN INDIA, THEIR INCOME IS NOT TAXABLE IN INDIA AND, THEREFORE, THE DISALLOWANCE U/S 40A(IA) IS NOT WARR ANTED. IN SUPPORT OF HIS CONTENTIONS, HE PLACED RELIANCE UPON THE FOLLOW ING DECISIONS : 1. CIT VS. EON TECHNOLOGY PVT. LTD., REPORTED IN 343 ITR 366, DELHI, WHEREIN THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE CBTD CIRCULAR NO. 23 DATED 23 JULY, 1969 AND CIRCULAR NO.786 DATED 7 TH FEB, 2000 TO ITA NO.26/B/12 8 HOLD THAT BUSINESS INCOME OF NON RESIDENTS CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA ONLY IF THERE IS BUSINESS CONNECTION IN INDIA AND IF THERE IS FAILUR E TO ESTABLISH BUSINESS CONNECTION IN INDIA THEN TAX NEE D NOT BE DEDUCTED AT SOURCE AND DISALLOWANCE U/S 40A(I) IS NOT CALLED FOR. 2. DCIT VS. SANJIV GUPTA REPORTED IN (2011) 50 DTR TRIBUNAL ORDERS, WHEREIN THE CIRCULAR NO. 7 OF 2009 DATED 22/10/2009 WITHDRAWING THE CIRCULAR NO.23 JULY 1969 AND CIRCULAR NO.786 OF 2000 HAS BEEN CONSIDERED AND IT HAS BEEN HELD THAT CIRCULARS WHICH ARE IN FORCE DUR ING THE RELEVANT ASSESSMENT YEARS ARE THE CIRCULARS THAT HA VE TO BE APPLIED AND SUBSEQUENT CIRCULARS EITHER WITHDRAW ING OR MODIFYING THE EARLIER CIRCULARS CAN ONLY HAVE PROS PECTIVE EFFECT AND CAN HAVE NO APPLICATION. HE HAS ALSO PL ACED RELIANCE UPON THE CIRCULAR NO.786 DATED 7 TH FEB, 2000 AND CIRCULAR NO.23 DATED 23 JUL, 2009, WHEREIN IT H AS BEEN SET OUT THAT WHERE THE NON-RESIDENT AGENTS OPE RATES OUTSIDE THE COUNTRY AND NO PART OF HIS INCOME ARISE IN INDIA AND THE PAYMENT IS ALSO REMITTED DIRECTLY ABR OAD ITA NO.26/B/12 9 AND THAT EVEN IF RECEIVED BY OR ON BEHALF OF THE AG ENTS IN INDIA AND SUCH PAYMENTS ARE NOT TAXABLE IN INDIA. 3. AIA ENGINEERING LTD. VS. ACIT, 78 DTR (TRIB) PAG E 35), WHEREIN THE COMMISSION PAID TO NON-RESIDENTS F OR THE SERVICES RENDERED OUTSIDE INDIA WERE HELD TO BE NOT DEEMED TO ARISE OR ACCRUE IN INDIA AND NO DISALLOWA NCE U/S 40A(IA) WAS CALLED FOR. 10. FURTHER, ON THE QUESTION AS TO THE SERVICES RE NDERED BY THE NON- RESIDENTS ARE TECHNICAL SERVICES, THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THESE PARTIES DO NOT RENDER ANY TECH NICAL, MANAGERIAL OR CONSULTANCY SERVICES BUT RENDER SIMPLE HANDLING/REC EIVING SERVICES. HE SUBMITTED THAT THE AGENT IN MALDIVES ONLY RECEIV ES THE GOODS WHICH ARE EXPORTED BY THE ASSESSEE AND FACILITATES THEIR CLEARANCE AND ENSURES THEIR DELIVERY TO THE ASSESSEES CLIENTS. HE SUBMITTED THAT THE NON-RESIDENT WHO RECEIVES THE TOURISTS IS ONLY INTE RMEDIARY BETWEEN THE ASSESSEE AND THE RESORTS/HOTELS AND HE IS NOT R ENDERING ANY SERVICES OF TECHNICAL NATURE AS DEFINED U/S 9(1)(VII) OF THE INCOME-TAX AND, THEREFORE, THESE SERVICES CANNOT BE CONSIDERED AS T ECHNICAL SERVICES ITA NO.26/B/12 10 AND THERE IS NO LIABILITY ON THE ASSESSEE TO DEDUCT TAX AT SOURCE WHILE MAKING THE PAYMENT. 11. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO PLACED RELIANCE UPON THE DECISION OF THE (1) AUTHORITY FOR ADVANCE RULING IN THE CASE O WALL ACE PHARMACEUTICAL PVT. LTD., REPORTED IN 278 ITR 97 (AAR DELHI), WHEREIN IT HAS BEEN HELD THAT THE CONSULTANCY FEE P AYABLE UNDER THE AGREEMENT BY THE ASSESSEE FALLS WITHIN THE MEANING OF FEES FOR TECHNICAL SERVICES AS PER EXPLANATION TO CLAUSE (VI I) OF SUB SEC. 1 OF SEC. 9; AND (2) HONBLE SUPREME COURT IN THE CASE O F TRANSMISSION CORPORATION OF INCOME-TAX VS. CIT REPORTED IN 239 I TR 587 (SC), WHEREIN IT WAS HELD THAT THE ASSESSEE WHO MAKES PAY MENT TO NON- RESIDENTS UNDER CONTRACT ENTERED INTO IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 AND THAT THE OBLIGATION IS LI MITED ONLY TO APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER T HE ACT. 12. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT THE BASIC QUESTION TO BE CONSIDERED BY US IS WHETHER THE PAYMENT MADE BY THE ASSESSEE TO THE AGE NTS OUTSIDE INDIA ARE IN THE NATURE OF THEIR BUSINESS INCOME OR FEES FOR TECHNICAL ITA NO.26/B/12 11 SERVICES. BOTH THE AO AS WELL AS THE CIT(A) HAVE HE LD THE SERVICES TO BE TECHNICAL SERVICES AS PER PROVISION OF 9(1)(VII) OF THE INCOME-TAX ACT. FOR APPLICATION OF THE SAID PROVISION, THE NAT URE OF THE SERVICES RENDERED BY THE NON-RESIDENTS IN MALDIVES ARE TO BE EXAMINED. AS FAR AS GEMINI INTERNATIONAL IS CONCERNED, WE FIND THAT IT SUPPLIES BUILDING MATERIALS TO VARIOUS TOURIST RESORTS AT MALDIVES AN D TO FACILITATE THE DELIVERY OF GOODS TO ITS CUSTOMERS, THE ASSESSEE HA S ENGAGED THE SERVICES OF M/S MISC. MALDIVES PVT. LTD, FOR WEIGHI NG THE GOODS, CLEARANCE FROM THE CUSTOMS AT MALDIVES AND THEIR DE LIVERY TO THE PURCHASERS. IN THIS WHOLE EXERCISE, WE HAVE TO EXA MINE WHETHER THERE IS ANY TECHNICAL, CONSULTANCY OR MANAGERIAL SERVICE S RENDERED BY THE NON-RESIDENT. FOR EVERY ACTIVITY OF SUPERVISION, CE RTAIN SKILL AND KNOWLEDGE OF THE EQUIPMENT TO BE DEALT WITH IS REQU IRED BUT CAN IT BE CALLED AS TECHNICAL SERVICES. THE AGENT ONLY RECEI VES THE MATERIAL, GETS THE MATERIAL CLEARED FROM THE CUSTOMS AND DELIVERS IT TO THE PURCHASERS. IN THIS WHOLE EXERCISE, THERE IS NO APP LICATION OF MIND BY THE AGENT AND NO INDEPENDENT DECISION TAKEN WITH RE GARD TO THE GOODS TO BE DELIVERED. IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT TECHNICAL SERVICES HAVE BEEN RENDERED BY THE AGENT AT MALDIVE S. THEREFORE, THE INCOME EARNED BY THE SAID AGENT OUTSIDE INDIA IS TO BE CONSIDERED AS HIS BUSINESS INCOME AND AS HELD BY THE HONBLE DELH I HIGH COURT IN ITA NO.26/B/12 12 THE CASE OF EON TECHNOLOGY PVT. LTD., (CITED SUPRA) THE BUSINESS PROFITS OF A NON-RESIDENTS CANNOT BE BROUGHT TO TAX UNTIL AND UNLESS THERE IS A PE IN INDIA. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. 13. AS REGARDS THE PAYMENT MADE BY GEMINI INTERNATI ONAL TOURS AND TRAVELS IS CONCERNED, WE FIND THAT THE AGENT RE CEIVES THE CLIENTS AND LEAVE THEM IN THE RESORTS OR HOTELS FOR WHICH H E IS PAID COMMISSION. THE NATURE OF THE ACTIVITY OF THE AGENT AT MALDIVES IS ONLY TO FACILITATE THE MOVEMENTS OF THE TOURISTS O F THE ASSESSEE WITHIN THE COUNTRY OF MALDIVES AND TO SEE THAT NO INCONVEN IENCE IS CAUSED TO THEM. HE IS NOT ENTITLED TO TAKE ANY DECISION AS R EGARDS THE DESTINATION OF THE TOURISTS OR WITH REGARD TO THEIR STAY AND ACCOMMODATION. THEREFORE, SERVICES RENDERED BY HIM ALSO CANNOT BE SAID TO BE TECHNICAL SERVICES U/S 9(1)(VII) OF THE INCOME-TAX ACT. IF THE SAID SERVICES CANNOT BE TERMED AS TECHNICAL SERVICE S, THEN THE PAYMENT MADE TO THE AGENT CAN ONLY BE CONSIDERED AS HIS BU SINESS INCOME WHICH CAN BE TAXED IN INDIA ONLY IF HE HAS A PE IN INDIA. AS THERE IS NO PE IN INDIA FOR MR. HUSSAIN SHIHAM, RESPECTFULLY FO LLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE EON TECHNOLOGY PVT. LTD. (CITED SUPRA), THIS GROUND OF APPEAL IS ALSO ALLOWED. ITA NO.26/B/12 13 14. THE DECISIONS RELIED UPON BY THE LEARNED DR ARE NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. IN VIEW OF THE SAME, THE ASSESSEES APPEAL IS ALLOWED. 15. THE LEVY OF INTEREST U/S 234B ABD 234C IS CONS EQUENTIAL IN NATURE AND HENCE AO IS DIRECTED TO GIVE CONSEQUENTI AL RELIEF. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST DEC, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 21/12/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.