ACIT, CHENNAI V. Abdul Gafoor, CHENNAI

ITA 2706/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86294 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 30-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India; Permanent establishment; Non-deduction of tax; Reasonable cause

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 2706/MDS/2014 ( / ASSESSMENT YEAR: 2011-12) THE ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-X CHENNAI-6. VS MR. ABDUL GAFFOOR PROP. M/S. ABDUL GAFFOR & CO., 2, RAMAPILLAI STREET, PERIAMET, CHENNAI-600 003. PAN:AACPG1871D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. N.MADHAVAN, JCIT /RESPONDENT BY : MR. G.SEETHARAMAN, C.A /DATE OF HEARING : 11 TH FEBRUARY, 2015 /DATE OF PRONOUNCEMENT : 20 TH FEBRUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNA I DATED 01.07.2014 FOR THE ASSESSMENT YEAR 2011-12. T HE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS THAT COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSE SSING OFFICER TO DELETE THE ADDITION OF ` 29,83,962/- MADE ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE ON PAYME NT MADE UNDER SECTION 40(A)(IA) TO OVERSEAS COMMISSION AGE NTS. 2 ITA NO.2706 /MDS/2014 2. THE APPEAL OF THE REVENUE IS TIME BARRED BY 10 DAYS. THE DEPARTMENT FILED A PETITION EXPLAINING REASONS FOR DELAY IN FILING OF APPEAL AND PRAYS FOR CONDONATION OF DE LAY. WE HAVE PERUSED THE REASONS AND ARE SATISFIED THAT TH ERE IS A REASONABLE CAUSE FOR THE DELAY IN FILING OF THE APP EAL. IN THE INTEREST OF JUSTICE, WE CONDONE THE DELAY OF TEN DA YS IN FILING OF THE APPEAL. THE PETITION FOR CONDONATION OF DELA Y IS THUS, ALLOWED AND THE APPEAL IS ADMITTED. 3. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE C OMPLETING THE ASSESSMENT DISALLOWED COMMISSION PAID BY ASSESS EE TO ITS NON-RESIDENT AGENTS ON THE GROUND THAT ASSESSEE HAS NOT DEDUCTED TDS ON SUCH COMMISSION, THEREFORE IT IS DISALLOWABLE UNDER SECTION 40(A)(I) OF THE ACT. AC CORDING TO THE ASSESSING OFFICER, FOREIGN COMMISSION PAID BY T HE ASSESSEE TO ITS NON-RESIDENT AGENTS IS TAXABLE AND THEREFORE ASSESSEE SHOULD HAVE DEDUCTED TDS UNDER SECTION 19 5 OF THE ACT. ON APPEAL, COMMISSIONER OF INCOME TAX (APP EALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CONTENTIONS OF THE ASSESSING OFFICER AND BY FOLLOWI NG THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F G.E.INDIA TECHNOLOGY CENTRE P.LTD. VS. CIT (327 ITR 456) 3 ITA NO.2706 /MDS/2014 DIRECTED THE ASSESSING OFFICER TO DELETE DISALLOWAN CE MADE UNDER SECTION 40(A)(I) OF THE ACT HOLDING THAT PRO VISIONS OF SECTION 195 OF THE ACT HAVE NO APPLICATION IN ASSES SEES CASE AS THE INCOME IS NOT CHARGEABLE TO TAX IN INDIA. RE VENUE IS IN APPEAL BEFORE US. 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORT S THE ORDER OF THE ASSESSING OFFICER AND PLACES RELIANCE ON THE GROUNDS OF APPEAL. 5. COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITS THAT O N IDENTICAL FACTS AND CIRCUMSTANCES, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS M/S. T.M.ABDUL RAHMAN & SONS IN ITA NO.2252/MDS/2013 DATED 8 TH MAY, 2014 AFFIRMED THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS) IN DELETING THE DISALLOWANCE MADE ON ACCO UNT OF NON-DEDUCTION OF TDS ON COMMISSION PAID TO FOREIGN AGENTS AS COMMISSION WAS PAID ONLY TO PROCURE ORDERS FROM NON- RESIDENT AGENTS AND SUCH COMMISSION IS NOT CHARGEAB LE TO TAX IN INDIA SO AS TO ATTRACT THE PROVISIONS OF SECTION 195 OF THE ACT AND THEREFORE IT CANNOT BE DISALLOWED UNDER SEC TION 40(A)(I) OF THE ACT. 4 ITA NO.2706 /MDS/2014 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. ON GOING THROUGH THE O RDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF T .M.ABDUL RAHMAN & SONS (SUPRA), WE FIND THAT ON IDENTICAL SI TUATION, THIS TRIBUNAL DELETED THE DISALLOWANCE MADE UNDER S ECTION 40(A)(I) OF THE ACT TOWARDS FOREIGN AGENTS COMMISSI ON PAYMENT. THE TRIBUNAL WHILE HOLDING SO, OBSERVED AS UNDER:- 4 . IT IS SEEN THAT WHEREVER THE COMMISSIONS WERE PAID BY THE ASSESSEE TO LOCAL AGENTS, TAXES HAVE BE EN DEDUCTED AT SOURCES AS PER LAW. ONLY IN THE CASE O F NON-RESIDENT AGENTS THAT THE ASSESSEE DID NOT DEDUC T ANY TAX ON THE GROUND THAT THOSE NON- RES I DENT AGENTS DID NOT HAVE ANY INCOME ARISING IN INDIA ON ACCOUNT OF THE COMMISSION PAID BY THE ASSESSEE. 5 . IN THE PRESENT CASE, THE DISPUTED AGENTS WERE NON- RESIDENTS. THOSE NON-RESIDENT AGENTS ARE CARRYING O N THE BUSINESS WHOLLY OUTSIDE INDIA. THE ASSESSEE HA D PAID COMMISSION TO THOSE NON-RESIDENT AGENTS FOR SERVICES RENDERED BY THEM WHOLLY OUTSIDE INDIA. IT ALSO HAS TO BE SEEN THAT THE NON-RESIDENT AGENTS DID NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN INDIA. THE COMMISSIONS WERE REMITTED BY THE ASSESSEE DIRECTLY TO THE NON-RESIDENTS OUTSIDE INDIA. 6. IN THE FACTS OF THE CASE AS STATED ABOVE, WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN HOLDING THAT THE PAYMENTS OF COMMISSIO N MADE BY THE ASSESSEE TO THE NON- RES I DENT AGENTS WERE NOT CHARQEABLE TO TAX IN INDIA IN THE HANDS OF THOSE NON-RESIDENT AGENTS. WHEN NO INCOME IS GENERATED TO THE NON-RESIDENTS WITHIN INDIA, THOSE NON- RESIDENT AGENTS ARE NOT LIABLE FOR ANY LEVY OF INCO ME TAX ON ACCOUNT OF THE COMMISSIONS . THEY EARNED OUT OF THE SERVICES RENDERED OUTSIDE INDIA FOR THE ASSESSEE . TDS ARISES ONLY WHERE THERE IS A CORRESPONDING TAX LIAB ILITY 5 ITA NO.2706 /MDS/2014 IN THE HANDS OF THE PAYEE. 7 . WE AGREE WITH THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. 7. RESPECTFULLY FOLLOWING THE SAID DECISION, WE AFF IRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) I N DELETING THE DISALLOWANCE MADE UNDER SECTION 40(A)( I) OF THE ACT IN RESPECT OF COMMISSION PAID TO NON-RESIDENT A GENTS ON PROCUREMENT OF SALES ORDERS AND REJECT THE GROUNDS RAISED BY THE REVENUE. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 20 TH FEBRUARY, 2015 SOMU 12 32 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .