Dignity Innovations, CHENNAI V. ACIT, CHENNAI

ITA 265/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9038 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 10-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN IRS
• Assessee Lawyers: M KARANAKURAN
• Keywords: Principle of natural justice; Bonafide belief; Services rendered outside India; Permanent establishment; Advance ruling; Corroborative evidences

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.265 & 266/MDS/2016 # % &% / ASSESSMENT YEARS : 2011-12 & 2012-2013. DIGNITY INNOVATIONS, G-15, 1 ST MAIN ROAD, AMBATTUR INDUSTRIAL ESTATE, CHENNAI 600 058. VS. ITO, BUSINESS WARD XIII(2)/ ACIT, NON CORPORATE CIRCLE 7(1), CHENNAI 600 034. [PAN AAFFD 9329L] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. M. KARANAKURAN, ADVOCATE +,'( ) * /RESPONDENT BY : SHRI. P. RADHAKRISHNAN, IRS, JCIT. ! ) - / DATE OF HEARING : 31-05-2016 ./& ) - / DATE OF PRONOUNCEMENT : 22-06-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE TWO APPEALS ARE FILED BY THE ASSESSEE A RE DIRECTED AGAINST ORDER OF COMMISSIONER OF INCOME-TAX (APPEA LS)-7, CHENNAI DATED 11.01.2016 FOR THE ASSESSMENT YEARS 2011-12 A ND 2012-13 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 19 61. SINCE THE ITA NOS.265 & 266/MDS/2016. :- 2 -: ISSUE IN THESE APPEALS ARE COMMON IN NATURE, THESE APPEAL S ARE CLUBBED, HEARD TOGETHER, AND DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. WE TAKE UP ITA NO.265/MDS/2016 OF ASSESSMENT YEAR 2011-12 FOR ADJUDICATION. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF 45,31,247 MADE UNDER SECTION 40(A)(I) OF THE ACT. 2. THE APPELLANTS SUBMIT THAT THE FOREIGN AGENT OF THE APPELLANT HAVING NO PERMANENT ESTABLISHMENT IN INDI A HAD RENDERED SERVICES OUTSIDE INDIA IN PROCURING EXPORT ORDERS FOR THE APPELLANTS AND NO PART OF THE COMMISSION RECEIVED BY IT IS CHARGEABLE TO TAX IN I NDIA AND THEREFORE THERE IS NO REQUIREMENT TO DEDUCT TDS UNDER SECTION 195 OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN HOLDING THAT THE SERVICES RENDERED BY THE NON-RESID ENT AGENT OF THE APPELLANT WOULD TANTAMOUNT TO TECHNICA L AND MANAGERIAL SERVICES BY IGNORING THE PRINCIPLES LAID DOWN BY THE JURISDICTIONAL MADRAS HIGH COURT IN THE CASE OF CIT VS. FAIZON SHOES PRIVATE LTD. (367 ITR 155) THAT THE SERVICES RENDERED BY A COMMISSION AGENT OUTSIDE INDIA CANNOT BE CONSIDERED AS TECHNIC AL OR MANAGERIAL SERVICES WITHIN THE MEANING OF SECTIO N 9 OF THE ACT. 4. THE COMMISSIONER OF INCOME-TAX (APPEALS) WITHOUT AFFORDING REASONABLE OPPORTUNITY HAS CONCLUDED THAT THE APPELLANT DID NOT FURNISH ANY DOCUMENT, CORRESPONDENCE OR EVIDENCE TO SHOW THAT THE NON- RESIDENT AGENT WAS A MERE GO BETWEEN AND HAS NOT RENDERED ANY TECHNICAL OR MANAGERIAL SERVICES AND THUS VIOLATED THE PRINCIPLES OF NATURAL JUSTICE AND FAIR PLAY. 5. THE IOWER AUTHORITIES HAVE FAILED TO CONSIDER THE M ODUS OPERANDI OF THE EXPORT OF THE GARMENTS THROUGH THE NON- RESIDENT AGENT AND ERRONEOUSLY CONCLUDED THAT THE SERVICES RENDERED ARE TECHNICAL IN NATURE. ITA NOS.265 & 266/MDS/2016. :- 3 -: 6. THE APPELLANT SUBMITS THAT THE LOWER AUTHORITIES ER RED IN HOLDING THAT THE SERVICES RENDERED BY THE NON-RESID ENT AGENT TO THE APPELLANTS ARE SERVICES FALLING UNDER SECTION 9(1 )(VII) OF THE ACT AND SAME IS AGAINST THE PRINC IPLES LAID DOWN BY VARIOUS HIGH COURTS AND TRIBUNALS. 7. THE APPELLANTS SUBMIT THAT THERE IS NO REQUIREM ENT TO DEDUCT TAX AT SOURCE UNDER SECTION 195 WHEN THE PAYMENT BY THE APPELLANTS TO THE NON-RESIDENT FOR A LL SERVICES RENDERED OUTSIDE INDIA IS NOT CHARGEABLE T O TAX IN INDIA AS LAID DOWN BY THE SURPEME COURT IN THE C ASE OF GE TECHNOLOGY CENTRE P LTD. (327 ITR 456). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF EXPORT OF GARMENTS AND FILED RETURN OF INCOME WITH TOTAL INCOME OF @3,94,370/- AND THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICES, THE LD. AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FILED DETAILS, BANK STATEMENTS, COPY OF BOOKS, COMMISSION PAYMENTS STATEMENTS, SUNDRY CREDITORS AND DEBTORS DETAILS. ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT, THE LD. ASS ESSING OFFICER FOUND THAT AN AMOUNT OF @69,84,280/- WAS CLAIMED AS DEDUC TION TOWARDS COMMISSION PAYMENTS AND THE LD. AUTHORISED REPRESE NTATIVE PRODUCED LIST OF CLIENTS TO WHOM COMMISSION WAS PAID AND TD S DEDUCTED AS PER PROVISIONS OF INCOME TAX ACT AND IN RESPECT OF BALA NCE AMOUNT OF @45,31,427/-, THE ASSESSEE PAID THE COMMISSION TO ANDRE .K. HONG KONG BEING A FOREIGN AGENT AND NO TDS WAS MADE ON SUCH PAYMENTS. THE LD. AUTHORISED REPRESENTATIVE FURNISHED LETTER DATED 06.02.2014 EXPLAINING THAT THE ASSESSEE FIRM IS IN MANUFACTUR E AND EXPORT OF ITA NOS.265 & 266/MDS/2016. :- 4 -: READY MADE GARMENTS AND A SUM OF @45,31,427/- WAS P AID AS EXPORT COMMISSION TO ANDRE H.K. BUYING OFFICE LTD (AGENT) THROUGH THE BUYER OF GOODS TO THE FOREIGN AGENT. THE ASSESSEE FIRM DID NOT PAY COMMISSION TO FOREIGN AGENT DIRECTLY AS THERE IS A OVERRIDING TERMS OF CONTRACT BETWEEN FOREIGN BUYER AND ASSESSEE WHILE A CCEPTING THE PURCHASE ORDER. THE ASSESSEE FIRM HAS AGREED TO ADD COMMISSION OF FOREIGN AGENT BASED ON THE SELLING PRICE OF THE AS SESSEES GOODS EXPORTED AND THE INVOICES IS PREPARED INCLUDING COMMISSION TO FOREIGN BUYING HOUSE AT HONG KONG. AT THE TIME OF EXPORT OF THE BUYING HOUSE (FOREIGN AGENT) SHALL DEDUCT THE COMM ISSION AND SHALL PAY THE EXPORT VALUE NET OF COMMISSION TO THE ASSES SEE FIRM BEING THE EXPORT SALE PROCEEDS RECEIVED AFTER DEDUCTION OF CO MMISSION BY THE FOREIGN BUYING HOUSE. THE LD. ASSESSING OFFICER FO UND THAT THE ASSESSEE HAS PASSED ENTRIES IN THE BOOKS OF ACCOUNT AT GROSS EXPORT SALES VALUE AS TURNOVER/ SALES AND DEBITED THE PROF IT AND LOSS ACCOUNT WITH THE COMMISSION AMOUNT DEDUCTED BY THE FOREIGN BUYER HOUSE AND THERE BEING NO DISPUTE AS THE FOREIGN AGENTS AR E NON-RESIDENT AND COMMISSION IS PAID FOR SERVICES RENDERED OUTSIDE IN DIA AND IS NOT LIABLE FOR TAXATION IN INDIA, FURTHER COMMISSION PA YMENTS ARE NOT COVERED UNDER THE PROVISIONS OF 9(1)(II) OF THE ACT AND FOREIGN AGENT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND NO PART OF INCOME ARISE OR ACCRUES IN INDIA. THE COMMISSION IS PAID BY THE BUYER TO THE ITA NOS.265 & 266/MDS/2016. :- 5 -: FOREIGN AGENT ON BEHALF OF EXPORTER AND THE INVOIC E RAISED INCLUDES COMMISSION PERCENTAGE OF AGENT. THE LD. ASSESSING OFFICER VERIFIED THE INVOICE COPY WERE THE ASSESSEE COMPANY RAISED INVOI CE ON CONSIGNEE LA HALLE, PARIS, FRANCE REFLECTING AT THE BOTTOM 5% COMMISSION IS TO BE PAID TO ANDRE H.K BUYING OFFICE LIMITED, HONG KONG. THE LD. ASSESSING OFFICER REFERRED TO THE AGENCY AGREEMENT BETWEEN THE ASSESSEE COMPANY AND FOREIGN AGENCY ANDRE H.K BUYIN G OFFICE LIMITED, HONG KONG. ON PERUSAL OF THE AGREEMENT AS PER THE TERMS ON EXPORT OF GOODS TO LA HALLE, PARIS, FRANCE, THE CO MMISSION IS PAYABLE ON INVOICE VALUE IN EUROS CURRENCY. THE ASS ESSEE ALSO FILED DELIVERY RELEASE NOTE ISSUED FOR PRODUCT INSPECTION OF GOODS EXPORTED. THE LD ASSESSING OFFICER IS OF THE OPINION THAT INV OICE RAISED BY THE ASSESSEE INCLUDES COMMISSION PAYMENT TO THE FOREIGN AGENT PAID BY THE BUYER ON BEHALF OF THE ASSESSEE COMPANY AS PER THE AGREEMENT BETWEEN FOREIGN AGENT AND ASSESSEE AND THE DELIVERY RELEASE NOTE IS ISSUED TO THE FOREIGN AGENT ON CHECKING THE QUALIT Y AND QUANTITY OF THE GOODS EXPORTED. THE LD. ASSESSING OFFICER RELIED O N THE PROVISIONS OF SEC. 9(1) (I) OF THE ACT AND OBSERVED THAT THOUGH T HE NON-RESIDENT IS RENDERING SERVICES AND RECEIVING PAYMENTS OUTSIDE INDIA BUT THE SOURCE OF INCOME FROM INDIA AND THE FOREIGN AGENT I S LIABLE TO BE TAXED IN INDIA AND ALSO SUPPORTED THE FINDINGS WITH THE DECISION OF AUTHORITY OF ADVANCE RULING (AAR) IN THE CASE OF SKF BOILERS AND DRIERS P. LTD ITA NOS.265 & 266/MDS/2016. :- 6 -: (AAR ORDER NO.983-984 OF 2010) AND DISALLOWED FORE IGN AGENT COMMISSION OF @45,31,247/- UNDER THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT FOR NON DEDUCTING OF TDS ALONGWITH OTHER A DDITIONS AND ASSESSED INCOME VIDE ORDER U/S.143(3) OF THE ACT DA TED 24.03.2014. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD.AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND HIGHLIGHTED T HE FINDINGS OF THE LD. ASSESSING OFFICER AND EXPLAINED THE BACKGROUND OF THE PARTNERSHIP FIRM IN EXPORT BUSINESS. THE METHODOLOGY ADOPTED B EING THE FOREIGN BUYERS PLACE BULK ORDERS WITH ITS NOMINATED FOREIGN BUYING HOUSE, M/S. ANDRE H.K. LIMITED, HONG KONG (FOREIGN AGENT) AND T HE SAID AGENT WOULD DISTRIBUTE THE ORDER TO VARIOUS EXPORTERS IN INDIA. THE FOREIGN BUYER M/S. HALLE, FRANCE WILL FIX THE SELLING PRICE FOR GOODS OF INDIAN MANUFACTURER AND COMMISSION PAYABLE TO AGENT M/S. A NDREW H.K. LIMITED, HONG KONG. THE INVOICE RAISED BY THE EXPO RTER INCLUDES COMMISSION PAYABLE TO THE FOREIGN AGENT. FURTHER, L D. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SERVICES OF THE A GENT ARE IN THE NATURE OF BROKERAGE AND DOES NOT INVOLVE MANAGERIAL AND TECHNICAL SERVICES AS PER THE PROVISIONS OF SEC. 9(1)(VII) OF THE ACT AND EXPLAINED THE SERVICES ARE PURELY AS PER TERMS OF AGENCY AGR EEMENT EXECUTED ITA NOS.265 & 266/MDS/2016. :- 7 -: BETWEEN INDIAN EXPORTER AND FOREIGN AGENT. THE FOR EIGN AGENT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND NOT L IABLE FOR TAXATION AND RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LIMITED IN TC(A) 789 OF 2 013 AND SUBSTANTIATED THE ARGUMENTS THAT FOREIGN AGENT COMM ISSION IS PAID FOR PROCUREMENT OF ORDERS OUTSIDE INDIA AND DOES NOT IN VOLVE ANY SPECIALIZED TECHNICAL SERVICES WHICH ARE TAXABLE IN INDIA. BUT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DISCUSSED AT PARA 5 OF HIS ORDER AND DISMISSED THE APPEAL AS UNDER:- 5. I HAVE CONSIDERED THE MATTER. THE ASSESSING OFFICER, IN THE ORDER FOR A.Y. 2012-2013 HAS BROUGHT ON RECORD DETA ILED FACTS AND CORRESPONDENCE GOVERNING THE ISSUE. IT IS SEEN THEREFROM THAT THE FOREIGN AGENT HAS MONITORED AND SUPERVISEE THE PRODUCTS ON OR READYMADE GARMENTS RIGHT FROM ITS IN CEPTION I.E. THE DESIGN TO THE FINAL DELIVERY TO THE FOREIG N BUYERS AND NOT MERELY ACTED AS AN AGENT TO PROCURE ORDERS. THE CORRESPONDENCES, AND EVIDENCES BROUGHT ON RECORD BY THE ASSESSING OFFICER INDICATE THAT THE AGENT HAS MONIT ORED THE SIZES, BUTTONS, QUALITY OF STITCHING, QUALITY OF CL OTH, COLOR, ETC. THE AGENT HAS ALSO PROVIDED DESIGN AND SKETCH OF TH E OUTFITS REQUIRED BY THE FOREIGN BUYERS AND ITS VARI OUS SPECIFICATIONS. ALL THESE ACTIVITIES GO BEYOND THE SCOPE OF A COMMISSION AGENT MERELY INVOLVED IN SECURING ORDERS , AND ENTERS INTO THE REALM OF TECHNICAL SUPERVISION INTO THE MANUFACTURING PROCESSES. THE APPELLANT EITHER BEFOR E THE ASSESSING OFFICER OR IN THIS APPEAL HAS NOT BEEN AB LE TO ESTABLISH THAT THE AGENT WAS A MERE EXPEDITER FOR T HE COMPLETION OF EXPORT COMMITMENT. THE APPELLANT HAS ALSO NOT BEEN ABLE F URNISH DOCUMENTS, CORRESPONDENCES, EVIDENCES, ETC. TO CONVINCE ME THAT THE AGENT WAS A MERE GO BETWEEN, AND HAS NOT RENDERED ANY TECHNICAL OR MANAGERIAL SERVICES. APART FROM MERELY STATING THAT THE SERVICES PREFORMED WERE NOT IN THE NATURE OF TECHNI CAL SERVICES, THE APPELLANT FIRM HAS NOT BEEN ABLE TO R EFUTE THE CONTENTIONS AND THE FINDINGS OF THE ASSESSING OFFIC ER. THE RELIANCE ON THE RATIO OF FAIZAN SHOES (SUPRA) ALSO DOES NOT HELP THE APPELLANT, AS IN THAT CASE, THE AGENT WAS UNDER AN ITA NOS.265 & 266/MDS/2016. :- 8 -: OBLIGATION TO RENDER SERVICES FOR COMPLETION OF EXP ORT, SUCH AS OPENING LETTERS OF CREDIT, ETC, AND THE NATURE O F TECHNICAL SERVICES WAS NOT DEAR FROM THE ORDER OF THE ASSESSING OFFICER. IN DISTINCTION, IN THE APPELLANT'S CASE, T HE ASSESSING OFFICER HAS IN HIS ASSESSMENT ORDER CLEARLY ESTABLI SHED THE NATURE OF TECHNICAL SERVICES RENDERED, AND REPRODU CED THE NECESSARY SUPPORTING EVIDENCES IN HIS ORDER. AS SUC H, I AGREE WITH THE DISALLOWANCE MADE BY THE ASSESSING O FFICER, AND DO NOT FIND ANY REASON TO INTERFERE WITH THE SA ME. THE GROUNDS OF APPEAL, THEREFORE FAILS. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEAL S) ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF ASS ESSEE REITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT A ND APPELLATE PROCEEDINGS AND ARGUED THE GROUNDS AS THE LD. COM MISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DI SALLOWANCE U/S.40(A)(I) OF THE ACT IRRESPECTIVE OF THE FACT TH AT FOREIGN AGENT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA AND RENDE RED SERVICES OUTSIDE INDIA BEING IN THE NATURE OF PROCUREMENT OF EXPORT ORDERS AND COMMISSION IS NOT CHARGEABLE TO TAX IN INDIA. THE F OREIGN AGENT IS NON- RESIDENT AGENT AND NO TECHNICAL AND MANAGERIAL SERV ICES WERE OBTAINED. THE LD.COMMISSIONER OF INCOME TAX (APPEA LS) HAS DISTINGUISHED THE JURISDICTIONAL HIGH COURT DECISIO N AND BROUGHT THE SERVICES OF FOREIGN AGENT WITHIN THE PURVIEW OF TEC HNICAL AND MANAGERIAL SERVICES UNDER THE PROVISIONS OF SEC. 9 (1) (VII) OF THE ACT AND CONCLUDED THE PROCEEDINGS WITHOUT OFFERING OPPO RTUNITY TO FURNISH DOCUMENTS TO SUBSTANTIATE THAT FOREIGN AGENT SERVIC ES ARE NOT TECHNICAL ITA NOS.265 & 266/MDS/2016. :- 9 -: SERVICES AND OVERLOOKED THE PRINCIPLES LAID DOWN WE RE THE PAYMENTS TO NON RESIDENT INDIAN OUTSIDE INDIA IS NOT CHARGEA BLE TO TAX IN INDIA AS PER THE APEX COURT DECISION IN GE TECHNOLOGY CENTRE P. LTD 327 ITR 456 AND FILED DOCUMENTS TO SUBSTANTIATE THE CLAIM AND P RAYED FOR ALLOWING THE APPEAL. 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND T HE PROVISIONS OF SEC. 9(1) (VII) OF THE ACT AND OPPOSED THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHO RISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE COMPANY IS A MANUFACTU RER OF READYMADE GOODS AND EXPORTS TO LA HALLE, FRANCE THROUGH ANDRE H.K. BUYING OFFICE LIMITED, HONG KONG. THE FOREIGN AGENT IS HEL PING THE ASSESSEE TO GET FOREIGN ORDERS AND BASED ON THE REQUISITION AND DESIGN PATTERN OF THE FOREIGN BUYER AND THE ASSESSEE SHAL L MANUFACTURE READYMADE GOODS AND WORKS PURELY ON TRADING AND NO TECHNICALITIES ARE INVOLVED. THE ASSESSEE PAYS THE FOREIGN COMMI SSION IN EUROS THROUGH ITS BUYER ABROAD TO THE FOREIGN AGENT AT HO NG KONG AND RECEIVE THE EXPORT PROCEEDS AFTER ADJUSTMENT OF COM MISSION PAYMENT. THE LD. AUTHORISED REPRESENTATIVE DEMONSTRATED BEFO RE US WITH A COPY OF INVOICE RAISED BY THE ASSESSEE COMPANY ON CONSIG NEE LA HALLE, ITA NOS.265 & 266/MDS/2016. :- 10 -: FRANCE WITH AGENTS NAME PRINTED ALONGWITH DETAILS O F QUANTITY AND PRICES. FURTHER, THE INVOICE RAISED DISCLOSURES 5% COMMISSION TO BE PAID TO ANDRE H.K. BUYING OFFICE LIMITED, HONG KONG AND PRODUCED COPY OF AGENCY AGREEMENT BEING IN FORCE FOR A PERI OD OF THREE YEARS EXPLAINING THE TERMS OF AGREEMENT AND COMMISSION PA YABLE @5% OF THE INVOICE VALUE. ON PERUSAL OF THE AGREEMENT, WE FOUND THAT COMMISSION IS PAYABLE BY ASSESSEE COMPANY IN EUROS AND US DOLLORS AS PER THE VALUE MENTIONED IN INVOICE AND AGENT SHA LL PROVIDE DESIGNS FOR MANUFACTURING FOR CONSIGNEE LA HALLE, FRANCE. T HE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE TECH NICAL SERVICES ARE RENDERED BY THE FOREIGN AGENT AND PROVISIONS OF SEC . 9(1)(VII) OF THE ACT ARE APPLICABLE. WE ON VERIFICATION OF THE CLAU SES OF THE AGENCY AGREEMENT FOUND THAT THE RELATION BETWEEN THE ASSES SEE AND THE FOREIGN AGENT IN PRINCIPLE FOR PROCUREMENT OF ORDE RS AND EXPORT OF GARMENTS. THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF ACIT VS. M/S. M.M. FORGINGS LTD IN ITA NO.2679/MDS/2014, ASSESSMENT YEAR 2011-2012 DAT ED 19.06.2015 OBSERVED AT PARA 13 AS UNDER:- WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COV ERED BY THE EARLIER ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-2011 IN ITA NO.2311/MDS/20 13 ITA NOS.265 & 266/MDS/2016. :- 11 -: VIDE ORDER DATED 28.03.2014. IN THE SAID ORDER, THE TRIBUNAL OBSERVED AS UNDER:- 5. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH TH E CASE FILE. AS ALREADY STATED HEREINABOVE, THE CIT(A), WH ILST DELETING THE IMPUGNED ADDITION U/S 40(A)(I) PERTAIN ING TO OVERSEAS PAYMENTS MADE BY THE ASSESSEE ON ACCOUNT O F COMMISSION, WAREHOUSING AND OTHER CHARGES, HAS FOLL OWED ORDER OF THE 'TRIBUNAL'(SUPRA) QUA THE VERY ISSUE. ON BEING GRANTED OPPORTUNITY, THE REVENUE HAS FAILED TO PROV E THAT THESE EXPENSES ARE LIABLE TO BE TAXED IN INDIA AS I NCOME IN THE HANDS OF CONCERNED PAYEES OR ANY SERVICES HAD B EEN RENDERED IN INDIA. THE REVENUE SUBMITS THAT THE 'TR IBUNAL'S ORDER HAS NOT BEEN BECOME FINAL AND ITS APPEAL IS P ENDING BEFORE THE HON'BLE HIGH COURT. IN OUR CONSIDERED OP INION, MERE PENDENCY OF AN APPEAL INVOLVING THE SAME ISSUE AGAINST THE ORDER OF THE 'TRIBUNAL' IS NO GROUND TO ADOPT A DIFFERENT APPROACH IN THE IMPUGNED ASSESSMENT YEAR. THUS, WE AGREE WITH THE FINDINGS OF THE CIT(A) UNDER CHAL LENGE AND REJECT GROUNDS RAISED BY THE REVENUE. SIMILAR VIEW WAS ALSO TAKEN BY THE MUMBAI BENCH IN THE CASE OF VILAS N. TAMHANKAR IN ITA NO.4522/MUM/2013 FOR THE ASSESSMENT YEAR 2009-2010, VIDE ORDER DATED 21.11.2 014 , AND SAME VIEW WAS ALSO TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LTD, 367 ITR 155 (MAD) AND FURTHER IN THE CASE OF BRAKES INDIA LTD. VS. DCIT (LTU) (144 ITD 403) THE CO-ORDINATE BENCH OF THE TRIBUNAL, IT WAS HELD THAT 47. IN OUR OPINION, NATURE OF SERVICES MENTIONED AB OVE WILL COME NOT WITHIN THE DEFINITION OF FEES FOR TE CHNICAL SERVICES GIVEN UNDER EXPLANATION 2 TO SECTION 9(1) (VII) OF THE ACT. BY VIRTUE OF SUCH SERVICES, THE CONCERNED RECIPIENTS HAD NOT MADE AVAILABLE TO THE ASSESSEE A NY NEW TECHNIC OR SKILL WHICH ASSESSEE COULD USE IN ITS BU SINESS. THE SERVICES RENDERED BY THE SAID PARTIES RELATED T O CLEARING, WAREHOUSING AND FREIGHT CHARGES, OUTSIDE INDIA. THE LOGISTICS SERVICE RENDERED WAS ESSENTIALLY WAREHOUSING FACILITY. IN OUR OPINION, THIS CANNOT B E EQUATED WITH MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. EVEN IF IT IS CONSIDERED AS TECHNICAL SER VICE, THE FEE WAS PAYABLE ONLY FOR SERVICES UTILIZED BY THE A SSESSEE IN THE BUSINESS OR PROFESSION CARRIED ON BY THE SAI D NON- RESIDENTS OUTSIDE INDIA. SUCH BUSINESS OR PROFESSIO N OF THE ITA NOS.265 & 266/MDS/2016. :- 12 -: NON-RESIDENTS, EARNED THEM INCOME OUTSIDE INDIA. TH US, IT WOULD FALL WITHIN THE EXCEPTION GIVEN UNDER SUB-CLA USE (B) OF SECTION 9(1) OF THE ACT. IN ANY CASE, UNDER SECT ION 195 OF THE ACT, ASSESSEE IS LIABLE TO DEDUCT TAX ONLY W HERE THE PAYMENT MADE TO NON-RESIDENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIRCUMSTANCES MEN TIONED ABOVE, ASSESSEE WAS JUSTIFIED IN HAVING A BONAFIDE BELIEF THAT THE PAYMENTS DID NOT WARRANT APPLICATION OF SE CTION 195 OF THE ACT. IN SUCH CIRCUMSTANCES, WE ARE OF TH E OPINION THAT IT COULD NOT HAVE BEEN SADDLED WITH TH E CONSEQUENCES MENTIONED UNDER SECTION 40(A)(I) OF TH E ACT. DISALLOWANCES WERE RIGHTLY DELETED BY THE LD. CIT(APPEALS). NO INTERFERENCE IS CALLED FOR.. WE FOUND THE JURISDICTIONAL HIGH COURT DECISION WA S CONSIDERED AND THE PROVISIONS OF SEC.40(A)(I) OF THE ACT BY THE C O-ORDINATE BENCH. IN THE PRESENT CASE, THE LD. ASSESSING OFFICER OBSERV ED THAT THE AGENT INSPECTS THE GOODS BEFORE RELEASE FOR EXPORTS AND T HE PERSONS OF THE AGENCIES SHALL CHECK THE QUALITY CONTROL IN RESPECT OF GOODS MANUFACTURED BY THE ASSESSEE AS PER DESIGN PATTERN AND OBSERVED THAT FOREIGN AGENT HAS PERMANENT ESTABLISHMENT IN I NDIA AND DISALLOWED COMMISSION U/SEC. 40(A)(I) OF THE ACT FO R NON DEDUCTION OF TDS. BUT PRIME FACIE NOTHING WAS BROUGHT ON RECOR D EVEN DURING THE HEARING PROCEEDINGS THAT THERE IS ESTABLISHMENT O F THE FOREIGN AGENT IN INDIA. WE, CONSIDERING THE APPARENT FACTS, AGEN CY AGREEMENT, INVOICE COPY, LEGAL PROVISIONS AND JUDICIAL DECISI ONS, FOUND THAT IT WOULD BE APPROPRIATE TO SET ASIDE THE DISPUTED ISSU E TO THE FILE OF LD. ASSESSING OFFICER TO VERIFY WHETHER THE SERVICES OF FOREIGN AGENT COMES WITHIN THE PURVIEW OF TECHNICAL SERVICES AND FOREIG N AGENT DOES NOT ITA NOS.265 & 266/MDS/2016. :- 13 -: HAVE ESTABLISHMENT OR OFFICE IN INDIA. WE SET ASID E THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND REMIT THE DISPUTED ISSUE TO THE FILE OF LD. ASSESSING OFFICER AND THE ASSESSEE SHALL BE PROVIDED WITH ADEQUATE OPPORTUNITY OF HEARING FOR FILING TH E DETAILS ON DISPUTED ISSUE BEFORE PASSING THE ORDER ON MERITS. THE APPEA L OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 8. CONSEQUENTLY, THE APPEAL OF THE ASSESSEE IN ITA NO.266/MDS/2016 FOR ASSESSMENT YEAR 2012-2013 IS A LLOWED FOR STATISTICAL PURPOSE. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NOS. 265 & 266/MDS /2016 ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 22ND DAY OF JUNE, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED: 22.06.2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :;% < / GF