Deputy Commissioner of Income Tax, Circle-1 (1)., Panaji V. M/s Sesa Resoursces Ltd. ( Formerly Known as M/s V. S. Dempo & Co. Pvt. Ltd.), Panaji

ITA 267/PAN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2105 (ITAT-PANAJI)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MEHBOOB ALI KHAN
• Assessee Lawyers: MIHIR NANIWADEKER
• Keywords: Retrospective amendment; Permanent establishment; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO. 2 67 /P A N/201 5 (ASST. YEAR : 200 9 - 1 0 ) DCIT, CIRCLE - 1(1), PANAJI. VS. M/S. SESA RESOURCES LTD., (FORMERLY KNOWN AS M/S. V.S. DEMPO & CO. PVT. LTD.), DEMPO HOUSE, D.B. MARG, CAMPAL, PANAJI GOA. PAN NO. AAACV 7160 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MIHIR NANIWADEKER ADV. DEPARTMENT BY : SHRI K. MEHBOOB ALI KHAN - D R DATE OF HEARING : 27 / 0 4 /201 6 . DATE OF PRONOUNCEMENT : 2 7 / 0 4 /201 6 . O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , PANAJI , DATED 2 5 /0 3 /201 5 . 2. THIS APPEAL WAS DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 20/08/2015 IN ITA NO. 267/PNJ/2015 . THE ASSESSEE FILED APPEAL AGAINST THE ORDER OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT RAISING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS JUSTIFIED IN UPHOLDING DISALLOWANCE UNDER SEC. 40(A)(IA) IN RESPECT OF NON - DEDUCTION OF TAX AT SOURCE ON PAYMENTS OF COMMISSION TO NON - RESIDENT SALES AGEN TS, WHEN IT WAS CLEAR FROM THE PROVISIONS OF THE ACT AS ALSO CIRCULARS ISSUED BY THE CBDT THAT THE RELEVANT AMOUNTS WERE NOT CHARGEABLE TO 2 ITA NO. 267 / PAN /201 5 TAX UNDER THE INCOME TAX ACT, 1961 , IN THE HANDS OF THE NON - RESIDENT RECIPIENTS? 3 . THE HONBLE BOMBAY HIGH COURT AT GOA , VIDE ORDER DATED 07/03/2016 , RESTORED THE ISSUE BACK TO THE FILE OF THE TRIBUNAL FOR RE - ADJUDICATING THE SAME AFRESH. 4 . FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED COMMISSION PAID TO FOREIGN AGENTS OF 10,86 , 92,826/ - ON ACCOUNT OF NON - DEDUCTION OF TDS AND THAT THE EXPENDITURE HAS NOT BEEN PAID FOR THE PURP O SE OF BUSINESS OF THE ASSESSEE. THE TRIBUNAL HELD THAT THE COMMISSION PAYMENT TO THE FOREIGN AGENTS WAS FOR THE PURPOSE OF BUSINESS AND COMMERCIAL EXPEDIE NCY , H OWEVER REGARDING NON - DEDUCTION OF TDS, APPLICABILITY OF THE PROVISIONS OF SEC. 40(A)(IA), THE TRIBUNAL HELD THAT THE PROVISIONS OF SEC. 195 HAS BEEN AMENDED BY THE INTRODUCTION OF EXPLANATION - II TO THE SAID SECTION BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/1992 , WHEREBY IT IS CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SEC. (1) AND TO MAKE DEDUCTION THERE UNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DE E M E D TO H A VE ALWAYS EXTENDE D TO ALL PERSONS, RESIDENT OR NON - RESIDENT, WHETHER OR NOT THE NON - RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA . THEREFORE, AS THE ASSESSEE HAS NOT DEDUCTED TDS UNDER SEC. 195, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) ARE RESTORED . 5. BEING AGGRIEVED BY THE SAID ORDER OF THE TRIBUNAL, THE ASSESSEE FILED APPEAL BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT RESTORED THE ISSUE TO THE FILE OF THE TRIBUNAL FOR ADJUDICATION AFRESH . THE HONBLE HIGH COURT AT PARA 8 OF ITS ORDER HAS GIVEN FINDING THAT ON THE S UBSTANTIAL QUESTION OF LAW REFERRED TO ABOVE , THE JUDGMENT OF THE 3 ITA NO. 267 / PAN /201 5 DIVISION BENCH OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. GUJARAT RECLAIM & RUBBER PRODUCTS LTD. IN INCOME TAX APPEAL NO. 169/2014 DATED 08/12/2015 , IT HAS BEEN, INTER ALIA, HELD THAT BEFORE EFFECTING DEDUCTION AT SOURCE ONE OF THE ASPECTS TO BE EXAMINED IS WHETHER SUCH INCOME IS TAXABLE IN TERMS OF THE INCOME TAX ACT. THIS ASPECT HAS NOT BEEN CONSIDERED BY THE TRIBUNAL WHILE CON C LUDING THAT THE APPELLANT HAS COMMITTED A DEFAULT IN NOT DEDUCTING THE TAX AT SOURCE. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT THE SERVICES OF NON - RESIDENT SALES AGENTS NAMELY MITSUI & CO. LTD. AND ALLIED ORE INC, JAPAN , ARE PERFORMED OUTSIDE INDIA AND THE SAME ARE NOT TAXABLE IN INDIA , HENCE, TDS IS NOT DEDUCTABLE FRO M THE PAYMENTS MADE TO THEM. THIS FINDING OF FACT BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT DISPUTED BY THE REVENUE BEFORE US. THEREFORE, THIS ISSUE STANDS COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GUJARAT RECLAIM & RUBBER PRODUCTS LTD. (SUPRA) , WHEREIN IT WAS HELD AS UNDER: - 5. RE: - QUESTION (A): (A) FOR THE S U BJECT ASSESSMENT YEAR, THE RESPONDENT - ASSESSEE HAD DURING TWO ASSESSMENT YEARS MADE PAYMENT OF COMMISSION TO NON - RESIDENT AGENT IN RESPECT OF SALES MADE OUTSIDE INDIA. THE ASSESSING OFFICER IN BOTH THE ASSESSMENT YEARS PASSED AN ORDER DISALLOWING THE PAYMENTS MADE TO NON - RESIDENT AGENT UNDER SECTION 40(A) (I) OF THE ACT FOR FAI LURE TO DEDUCT TAX AT SOURCE. THE BASIS OF BOTH THE ASSESSMENT ORDER DISALLOWING THE EXPENDITURE IS IN VIEW OF THE FACT THAT THE CIRCULAR NO. 23 OF 1969 AND 786 OF 2000 ISSUED BY THE CBDT WHICH HAD CLARIFIED THAT COMMISSION PAID TO NON - RESIDENT AGENT FOR S ALE DOES NOT GIVE IT RISE TO INCOME HAD BEEN WITHDRAWN BY CIRCULAR NO.7 DATED 22FLD OCTOBER, 2009; (B) IN APPEAL, SO FAR AS ASSESSMENT YEAR 2007 - 08 WAS CONCERNED, CIT(A) UPHELD THE ORDER OF THE ASSESS ING OFFICER ON THE SAME GROUND I.E. WITHDRAWAL OF THE EARLIER CIRCULAR NOS.23/1969, 786/2000 BY CIRCULAR NO. 7 OF 2009. SO FAR AS ASSESSMENT YEAR 2008 - 09 IS CONC ERNED, THE CIT(A) BY ORDER DATED 10 TH OCTOBER 2009 ALLOWED RESPONDENT - ASSESSE E S APPEAL. THE CIT(A) WHILE ALLOWING RESPO NDENT - ASSESSEES APPEAL FOR THE ASSESSMENT YE A R 2008 - 09, INTER ALIA HELD THAT THE COMMISSION AGENT DID NOT HAVE 4 ITA NO. 267 / PAN /201 5 ANY BUSINESS CONNECTION IN INDIA AS THEY HAD NO PERMANENT ESTABLISHMENT IN INDIA AND IN FACT NEITHER ANY INCOME AROSE OR ACCRUED TO NON - RESIDENT AGENT IN INDIA . THE CIT(A), INTER ALIA RELIED UPON THE DECISION OF THE TRIBUNAL IN DEIT V/S ARDESHI B CURSETJEE & SONS LTD. 1 15 TTJ 916 WHICH HELD THAT THE COM MISSION PA ID TO NON - RESIDENT AGENT OUTSIDE INDIA FOR THE SERVICES RENDER E D WERE NOT CHARGEABLE TO TAX IN INDIA. IN THESE CIRCUMSTANCES, THE CIT(A) HELD THAT THERE WAS NO OCCASION TO DEDUCT TAX AT SOUR CE IN R E SPECT OF THE PAYMENT MADE TO THE NO N - RESIDENT AGENT; (C) M O REOVER, THE ORDER OF CIT(A) ALSO HOLDS THAT THE CIRCULAR NO.7 OF 2009 WITHDRAWING THE EARLIER CIRCULARS WILL NOT HAVE RETROSPECTIVE EFFECT SO AS TO RENDER CIRCULAR NO.23 OF 1965 AND 786 OF 2000 INOPERATIVE FOR THE ASSESSMENT YEARS; (D) BEING AGGRIEVED, THE RESPONDENT - ASSESS E E AS WELL AS REVENUE PREFERRED AN APPEAL TO THE TRIBUNAL FROM THE ORDER OF CIT(A). IN RESPECT OF THE ORDER OF CIT(A) FOR ASSESSMENT YEAR 2007 - 08 RESPONDENT - ASSESSE E S FILED AN APPEAL, WHILE IN RESPECT OF ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2008 - 09 REVENUE HAS FILED APPEAL; ( E) BY THE COMMON IMPUGNED ORDER, THE TRIBU NA L AFTER CONSIDERING SUBMISSIONS PLACES RELIANCE UPON THE DECISION OF ITS CO - ORDINATE BENCH IN ARMAYESH GLOBAL V/S. ACIT , 50 SOT 564, THE DELHI HIGH COURT IN CIT V S. EON 366 AD THE REASONS RECORDED BY THE CIT(A) IN HIS ORDER FOR THE ASSESSMENT YEAR 2008 - 09 TO CONCLUDE THAT OF NON - RESIDENT COMMISSION AGENT CANNOT BE AS INCOME ARISING OR ACCRUING IN INDIA OF SECTION 40(A)(I) WOUL D HAVE NO ASSESSMENT YEARS UNDER CONSIDERATION; (F) THE GRIEVANCE OF THE REVENUE IS THAT THE IMPUGNED O RD ER OF THE REPRODUCES THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2008 - 09 WHICH WAS IN FAVOUR OF THE RESPONDENT - ASSESSEE AND APPROVES THE SAME. THIS WITHOUT BESTOWING ANY CONSIDERATION TO THE ORDER PASSED BY THE CIT(A) IN RESPECT OF ASSE SSMENT YEAR 2007 - 08 WHICH WA S IN FAVOUR OF THE REVENUE. IN THESE CIRCUMSTANCES, IT IS SUBMITTED THAT APPEALS WARRANT ADMISSION. (G) WE FIND THAT THE COMMON ORDER OF THE TRIBUNAL WHILE DEALING WITH THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2008 - 09 ALSO CONSIDERS THE ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08 WHILE DEALING WITH THE REVENUES CONTENTION AS REFLECTED IN THE ORDERS OF THE ASSESSING OFFIC ER WHICH ARE SIMILAR FOR BOTH THE ASSESSMENT YEARS. IN FACT, THE REASONS FOR THE ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2007 - 08 ARE IDENTICAL TO THE 5 ITA NO. 267 / PAN /201 5 ASSESSING OFFICERS ORDERS IN BOTH THE ASSESSMENT YEARS I.E. THE EARLIER CIRCU LAR NOS . 23 OF 1969 AND 786 OF 2000 S TAND WITHDRAWN BY CIRCULAR NO7 OF 2003. THEREFORE, THE EARLIER CIRCULAR WHICH COVER WOULD NOT BE AP PLICABLE/ AVAILABLE FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09. IN FACT, THE CIT(A) IN HIS ORDER FOR ASSESSMENT YEAR 2008 - 09 WHILE ALLOWING THE APPEAL OF THE RESPONDENT - ASSESSEE PLACES RELIANCE UPON THE DECISION P1.. THE TRIBUNAL IN CASE OF ARDESHI B. CURSETJEE (SUPRA) WHICH IN TURN RELIES UPON THE DECISION OF THE SUPREME COURT IN CITWS TOSHOKU LTD 125 ITR 525 WHEREIN ON ALMOST IDENTICAL FACTS, THE APEX COURT HELD THAT THE COMMISSION EARNED BY THE NO N - RESIDENT AGENT WHO CARRIED ON THE BUSINESS OF SELLING INDI AN GO O DS OUTSIDE INDIA, CANNOT BE SAID HAVE DEEMED TO BE, INCOME WHICH HAS ACCRUED AND/OR ARISEN IN INDIA. THIS VIEW OF TH AT CIT(A) FOR ASSESSMENT YEAR 2008 - 09 WAS FOUND ACCEPTABLE BY THE TRIBUNAL IN ITS IMPUGNED ORDER AND APPLIED THE SAME EVEN FOR ASSESSMENT YEAR 2007 - 0 8. IN VIEW OF THE FACT THAT THE ISSUE STANDS CONCLUDED IN FAVOUR OF THE RESPONDENT - ASSESSEE BY THE DECISION OF THE SUPREME COURT IN TOSHOKU LTD. (SUPRA). THE REVENUE HAS NOT SHOWN ANY CHANGE IN THE LAW IN THE SUBJECT ASSESSMENT YEARS WHICH WOULD WARRANT OUR NOT FOLLOWING THE APEX COURTS DECISION; (H) MOREOVER, WE FIND CBDT CIRCULAR NO.23 OF 1969 HAS BEEN REPRODUCED IN THE IMPUGNED ORDER AND THE RELEVANT EXTRACT READS AS UNDER: FOREIGN AGENTS OF INDIAN EXPORTS A FOREIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA. HIS COMMISSION IS USUALLY REMITTED D IRECTLY TO HIM AND IS, THEREFORE, NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA. SUCH AN AGE NT IS NOT LIABLE TO INCOME TAX IN INDIA ON THE COMMISSION. THIS CIRCULAR OF 1969 WAS ADMITTEDLY IN FORCE DURING THE TWO ASSESSMENT YEARS IT WAS ONLY SUBSEQUENTLY I . E ON 22 ND O C TOBER 2009 THAT THE EARLIER CIRCULAR OF 1969 AND ITS REITERATION AS FOU N D IN CIRCULAR NO.786 OF 2000 WERE WITHDRAWN. HOWEVER, SUCH S UBSEQUENT WITHDRAWAL OF AN EARLIER C IRCULAR CANNOT HAVE RETROSPECT I VE OPERATION AS HE LD BY THIS COURT IN UTI V /S. P. K.UNNY AND OTHERS 249 ITR 612. ( I ) IN VIEW OF THE ABOVE, NOT ONLY THE ENTIRE I SSUE STANDS CONCLUDED IN FAVOUR OF THE RESPONDENT - AS S ESSEE IN THE PRESENT FACTS BY THE CBDT CIRCULAR NOS. 23 OF 2969 A N D 786 OF 2000 WHICH WERE IN FORCE DURING THE SUBJECT ASSESSMENT YEARS BUT ALSO BY THE DECISION OF THE APEX COURT IN TOSHOKU LTD. (SUPRA) IN FAVOUR OF THE RESPONDENT - ASSESSEE THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES 6 ITA NO. 267 / PAN /201 5 IN THE QUESTION FRAMED FOR OUR CONSIDERATION ACCORDINGLY, QUESTION (A) NOT ENTERTAINED . 6 . RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON WEDNESDAY , THE 2 7 TH DAY OF APRIL , 201 6 AT GOA . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 2 7 TH APRIL, 201 6 . VR/ - COPY TO: 1 . THE ASSESSEE. 2 . THE REVENUE. 3 . THE CIT 4 . THE CIT(A) 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI