The JCIT(OSD), Visakhapatnam V. M/s. National Mineral development Corporation, Visakhapatnam

ITA 299/VIZ/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6435 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI G GURUSAMY
• Assessee Lawyers: LAXMINIWA S SHARMAAR
• Keywords: Non-deduction of tax
• Section: 143(3); 201(1)

Judgement Text

ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.299 & 300/VIZAG/2016 ( / ASSESSMENT YEAR: 2008-09) JCIT(OSD), TDS CIRCLE - 1, VISAKHAPATNAM M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VISAKHAPATNAM [PAN NO. AAACN7325A ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI SHRI G. GURUSAMY, DR / RESPONDENT BY : SHRI LAXMINIWA S SHARMA,AR / DATE OF HEARING : 01.03.2017 / DATE OF PRONOUNCEMENT : 03.03.2017 / O R D E R PER SHRI G. MANJUNATHA, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX ( A)-2, GUNTUR FOR THE ASSESSMENT YEAR 2008-09, CHALLENGING DELETION O F DEMAND RAISED BY THE A.O. U/S 201(1) & 201(1A) OF THE INCOME TAX ACT , 1961 (HEREINAFTER CALLED AS 'THE ACT') AND DELETION OF CONSEQUENT PEN ALTY LEVIED U/S 271C OF ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 2 THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE. THOU GH, THE FACTS ARE IDENTICAL IN BOTH APPEALS, THE ISSUES ARE DIFFERENT , THEREFORE, THESE APPEALS ARE DISPOSED OFF SEPARATELY BY WAY OF A COM MON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.299/VIZAG/2016: 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION LIMITED (N MDC) IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN THE BUSINESS OF MINER AL EXPLORATION AND SALE OF IRON ORE. IN THIS CASE, THE ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT FOR THE ASSESSMENT YEAR 2008- 09, WHEREIN THE A.O. HAS DISALLOWED COMMISSION PAYMENT U/S 40(A)(IA) OF THE ACT, FOR NON- DEDUCTION OF TAX AT SOURCE. BASED ON THE INFORMATI ON, THE A.O. PASSED AN ORDER U/S 201(1) & 201(1A) OF THE ACT AND HELD T HE ASSESSEE AS AN ASSESSEE IN DEFAULT FOR FAILURE TO DEDUCT TAX AT SO URCE U/S 194H/194J OF THE ACT, TOWARDS COMMISSION PAYMENT TO M/S. MMTC AN D COMPUTED TDS U/S 201(1) AND INTEREST U/S 201(1A) OF THE ACT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE CONTENDED THAT M/S. NMDC IS SELLING IRON ORE TO MMTC AS PER M EMORANDUM OF AGREEMENT DATED 12.6.2007, WHERE IT IS CLEARLY MENT IONED THAT NMDC IS SELLER AND MMTC IS BUYER. THE TRANSACTION BETWEEN THE ASSESSEE AND ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 3 THE MMTC IS ON PRINCIPAL TO PRINCIPAL BASIS AND M/S . NMDC HAS NOT INCURRED ANY EXPENDITURE IN THE NATURE OF COMMISSIO N OR BROKERAGE, THEREFORE, THE QUESTION OF DEDUCTION OF TAX AT SOUR CE DOES NOT ARISE. THE ASSESSEE FURTHER SUBMITTED THAT THE ISSUE HAS B EEN ALREADY CONSIDERED BY THE JURISDICTIONAL ITAT, IN ASSESSEE S OWN CASE FOR THE EARLIER YEAR, WHEREIN THE HONBLE ITAT CATEGORICALL Y HELD THAT TRANSACTION BETWEEN THE ASSESSEE AND M/S. MMTC IS ON PRINCIPAL TO PRINCIPAL BASIS AND THE QUESTION OF DEDUCTION OF TAX AT SOURCE DOES NOT ARISE. THE CIT(A) AFTER CONSIDERING THE ASSESSEES EXPLANATION S AND ALSO BY FOLLOWING THE DECISION OF ITAT, VISAKHAPATNAM IN AS SESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, 2005-06 & 2006-07 IN ITA NOS.145, 146 & 147/VIZAG/2006 DATED 20.7.2009 AND ALSO ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008-0 9 & 2009-10 IN ITA NO.292 & 293/H/2013, DELETED ADDITIONS MADE BY THE A.O. TOWARDS TAX AND INTEREST U/S 201(1) & 201(1A) OF THE ACT. AGGR IEVED BY THE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE COMPANY IS NOT LIABLE TO MAKE TDS U/S 194H OF THE ACT, ON THE COMMISSION PAYMENT TO M/S. MMTC. THE LD. CIT(A ) FAILED TO APPRECIATE THE FACT THAT THE TRANSACTION BETWEEN TH E ASSESSEE COMPANY AND MMTC WAS ON PRINCIPAL TO AGENT BASIS. THE LD. D.R. REFERRING TO THE ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 4 PROVISIONS OF SECTION 182 OF THE INDIAN CONTRACT AC T, 1872 SUBMITTED THAT AN AGENT IS A PERSON EMPLOYED TO DO ANY ACT FO R ANOTHER, OR TO REPRESENT ANOTHER IN DEALING WITH THIRD PERSONS AND THE PERSON FOR WHOM SUCH ACT IS DONE OR WHO IS SO REPRESENTED IS C ALLED THE PRINCIPAL. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE TRANSACTION BETWEEN THE ASSESSEE AND M/S. MMTC IS ON PRINCIPAL TO PRINC IPAL BASIS IS INCORRECT. THE LD. D.R. REFERRING TO THE DECISION OF ITAT, MUMBAI IN THE CASE OF SKOL BREWERIES LIMITED VS. ACIT IN ITA NO.6 175/MUM/2011 DATED 18.1.2013 SUBMITTED THAT SECTION 194H OF THE ACT TALKS ABOUT PAYMENT TO A RECIPIENT, WHICH IS THE INCOME BY WAY OF COMMISSION OR BROKERAGE AND DOES NOT TALK ABOUT THE RELATIONSHIP BETWEEN THE BUYER AND THE PAYEE NECESSARILY BE OF A PRINCIPAL AND AGE NT. SINCE, THE ASSESSEE ITSELF HAS ADMITTED BEFORE THE A.O. THAT I T HAD PAID COMMISSION TO M/S. MMTC ON FIXED PERCENTAGE BASIS TOWARDS EXPO RT SALES, THE ASSESSEE IS LIABLE TO DEDUCT TDS U/S 194H/194J OF T HE ACT. SINCE, THE ASSESSEE FAILED TO DEDUCT TDS, THE A.O. HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 201(1) & 201(1A) OF THE ACT A ND HIS ORDER SHOULD BE UPHELD. 5. THE LD. A.R. FOR THE ASSESSEE, ON THE OTHER HAND STRONGLY SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT T HE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT, VISAKHAPATNAM IN A SSESSEES OWN CASE ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 5 FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06 IN ITA NOS.145, 146 & 147/VIZAG/2006, WHEREIN THE ITAT CATEGORICALLY HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND M/S. MMTC IS NOT ON PRINCI PAL TO AGENT BASIS BUT ON PRINCIPAL TO PRINCIPAL BASIS AND HENCE, THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS ON COMMISSION PAYMENTS. THE LD. A.R. FU RTHER SUBMITTED THAT THE ITAT, HYDERABAD B BENCH IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEARS 2008-09 & 2009-10 IN ITA NO.292/H/ 2013 AND 293/H/2013 HAS CONSIDERED THE ISSUE OF DISALLOWANCE OF COMMISSION PAYMENT TO M/S. MMTC U/S 40(A)(IA) OF THE ACT AND A FTER FOLLOWING THE DECISION OF ITAT, VISAKHAPATNAM IN ASSESSEES OWN C ASE HAS HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE AND MMTC WAS O N PRINCIPAL TO PRINCIPAL BASIS AND HENCE, THERE CAN BE NO COMMISSI ON PAYMENT TO MMTC, AS SUCH, THE QUESTION OF SUSTAINING THE ASSES SING OFFICER IN ESTIMATING COMMISSION AND DISALLOWING THE SAME U/S 40(A)(IA) OF THE ACT DOES NOT ARISE. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY QUESTION THAT CAME UP FOR OUR CONSIDERATION IS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TRANSACTION B ETWEEN THE ASSESSEE AND MMTC IS IN THE NATURE OF COMMISSION OR BROKERAG E WHICH ATTRACTS TDS U/S 194H/194J OF THE ACT. THE ISSUE NO LONGER IS A RES INTEGRA. ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 6 THE COORDINATE BENCH OF ITAT, VISAKHAPATNAM IN ASSE SSEES OWN CASE FOR THE ASSESSMENT YEARS 2003-04 TO 2005-06 IN ITA NOS.145, 146 & 147/VIZAG/2006 HAS CONSIDERED THE ISSUE IN DETAIL A ND HELD THAT TRANSACTION BETWEEN THE ASSESSEE AND MMTC IS NOT ON PRINCIPAL TO PRINCIPAL BASIS AND HENCE THE ASSESSEE IS NOT LIABL E TO DEDUCT TDS U/S 194H OF THE ACT. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: 4.4 IT IS VERY PERTINENT TO NOTE THAT THE LD. CI T(A) HAS NOTED THE FACT THAT THE ASSESSEE HAS ROUTED THE TRANSACTION OF EXP ORT THROUGH MMTC ONLY BECAUSE THE ASSESSEE WAS NOT ALLOWED TO EFFECT THE EXPORT O N ACCOUNT OF GOVERNMENT REGULATIONS. IT IS THE MOST STRIKING FEATURE IN THE IMPUGNED TRANSACTIONS WHICH WAS NOT AT ALL CONS IDERED BY THE TAX AUTHORITIES. IT IS WELL SETTLED LAW THAT IN ANY AGE NCY AGREEMENT, AN AGENT CAN ACT ON BEHALF OF THE PRINCIPAL ONLY IN RESPECT OF THOSE TRANSACTIONS WHICH THE PRINCIPAL IS ENTITLED TO CARRY ON DIRECTL Y WITHOUT THE ASSISTANCE/HELP OF THE AGENT, I.E. EVEN IN THE ABSE NCE OF AN AGENT, THE PRINCIPAL SHOULD BE ENTITLED TO CARRY ON THE SAID T RANSACTION. IN THE INSTANT CASE THERE IS NO DISPUTE WITH REGARD TO THE FACT TH AT THE ASSESSEE HEREIN IS NOT ENTITLED TO EXPORT THE IRON ORE WITH FE CONTENT OF 64% AND ABOVE. SINCE THE ASSESSEE IS DISENTITLED TO EXPORT THE GOO DS, IT CANNOT BE POSSIBLE TO SAY THAT THE GOODS WERE EXPORTED BY MMTC ON BEHA LF OF THE ASSESSEE ON A PRINCIPAL TO AGENT BASIS. AS CONTENDED BY THE ASSESSEE, IT CAN ONLY BE HELD THAT THE MMTC HAS EXPORTED THE GOODS ON ITS OWN AND NOT ON BEHALF OF THE ASSESSEE HEREIN. BY VIRTUE OF THE GO VERNMENT REGULATIONS, BOTH THE COMPANIES HAD TO REACH AN AGREEMENT WITH R EGARD TO THE MODALITIES OF THE INCURRING EXPENSES AND PAYMENT AN D IN OUR OPINION, THE SAID MODALITIES OF PAYMENT ARE NOT THE DECIDING FAC TOR TO DETERMINE THE NATURE OF TRANSACTION. IN VIEW OF THE FOREGOING, WE SET ASIDE THE ORDERS OF THE LD CIT(A) AS WELL AS THAT OF THE ASSESSING O FFICER. SINCE WE HAVE DECIDED THE FIRST ISSUE IN FAVOUR OF THE ASSESSEE, THE SECOND ISSUE URGED BY THE ASSESSEE BECOMES INFRUCTUOUS. 7. A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE COORD INATE BENCH OF ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEARS 2008-09 & 2009-10 IN ITA NOS.292 & 293/H/2013 IN TH E LIGHT OF THE DISALLOWANCE OF COMMISSION PAYMENT U/S 40(A)(IA) OF THE ACT, FOR ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 7 NON-DEDUCTION OF TAX AT SOURCE. THE COORDINATE BEN CH, AFTER CONSIDERING THE RELEVANT FACTS AND ALSO BY FOLLOWING THE DECISI ON OF ITAT, VISAKHAPATNAM DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: RESPECTFULLY FOLLOWING THE DECISION, WE HOLD THAT SINCE THE ASSESSEE IS NOT ENTITLED TO EXPORT DIRECTLY AND EXP ORT BY THE MMTC WAS ON PRINCIPAL-PRINCIPAL BASIS, THERE CAN BE NO COMMISSI ON PAYMENT TO MMTC, AS SUCH THE QUESTION OF SUSTAINING THE ORDER OF THE ASSESSING OFFICER IN ESTIMATING THE COMMISSION AND DISALLOWING THE SAME UNDER S.40(A)(IA) DOES NOT ARISE. IN FACT THERE IS NO CLAIM OF COMMI SSION BY ASSESSEE. SO QUESTION OF DEDUCTION OF TAX DOES NOT ARISE AND M/S . NMDC LIMITED, HYDERABAD CONSEQUENTLY DISALLOWANCE U/S 40(A)(IA). ACCORDINGLY, THE ORDER OF THE CIT(A) IS UPHELD AND REVENUES GROUND ON THIS ISSUE IS REJECTED. 8. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF ITAT, VISAKHAPATNAM BENCH AND ITAT, HYD ERABAD BENCH IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT TRANSA CTION BETWEEN THE ASSESSEE AND M/S. MMTC IS ON PRINCIPAL TO PRINCIPAL BASIS AND HENCE THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S 194H/194J OF THE ACT. THE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIG HTLY DELETED ADDITIONS MADE BY THE A.O. WE DO NOT FIND ANY ERROR OR INFIR MITY IN THE ORDER OF THE LD. CIT(A), HENCE WE INCLINED TO UPHOLD CIT(A) ORDER AND REJECT APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 8 ITA NO.300/VIZAG/2016: 10. THE REVENUE HAS FILED THIS APPEAL AGAINST THE O RDER OF CIT(A), CHALLENGING THE DELETION OF PENALTY LEVIED U/S 271C OF THE ACT, FOR FAILURE TO DEDUCT TAX AT SOURCE. SINCE, WE HAVE ALREADY DE CIDED THE ISSUE OF APPLICABILITY OF THE PROVISIONS OF SECTION 194H/194 J OF THE ACT, ON COMMISSION PAYMENT TO MMTC IN FAVOUR OF THE ASSESSE E BY HOLDING THAT THE TRANSACTION BETWEEN ASSESSEE AND THE MMTC IS NO T COMING WITHIN THE SCOPE OF SECTION 194H OF THE ACT, CONSEQUENTLY, THE ASSESSEE IS NOT LIABLE TO DEDUCT TDS U/S 194H/194J OF THE ACT. SIN CE, WE HAVE ALREADY DELETED THE ADDITIONS MADE BY THE A.O. U/S 201(1) & 201(1A) OF THE ACT, CONSEQUENT PENALTY LEVIED U/S 271C OF THE ACT FOR F AILURE TO DEDUCT TDS CANNOT SUSTAIN IN THE EYES OF LAW. THEREFORE, WE D IRECT THE A.O. TO DELETE PENALTY LEVIED U/S 271C OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 RD MAR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 03.03.2017 VG/SPS ITA NOS.299 & 300/VIZAG/2016 M/S. NATIONAL MINERAL DEVELOPMENT CORPORATION, VSKP 9 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE JCIT, (OSD), TDS CIRCLE-1, V ISAKHAPATNAM 2. / THE RESPONDENT M/S. NATIONAL MINERAL DEVELOPME NT CORPORATION, KHANIJ BHAVAN, PORT AREA, VISAKHAPATNAM. 3. + / THE CIT (TDS), VIJAYAWADA 4. + ( ) / THE CIT (A)-2, GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM