EL FORGE LIMITED, CHENNAI V. DCIT CORPORATE CIRCLE 2(1), CHENNAI

ITA 3018/CHNY/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3453 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITHA
• Assessee Lawyers: S SRIDHAR
• Keywords: Principle of natural justice; Permanent establishment; TDS
• Section: 195

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI , . , % BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO 3018/CHNY/2018 ( / ASSESSMENT YEAR: 2009-10) M/S. EL FORGE LIMITED, 21E, A.R.K. COLONY, ELDAMS ROAD, ALWARPET, CHENNAI-600 018. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(1), CHENNAI-600 034. PAN:AAACE 1706C ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENTBY : MS. R. ANITHA, JCIT /DATE OF HEARING : 09.11.2020 /DATE OF PRONOUNCEMENT : 09.11.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-6, CHENNAI DATED 25.09.2018 AND IT PERTAINS TO ASSESS MENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE ORDER OF COMMISSIONER OF INCOMETAX (APPEA LS) DATED 25.09.2018 IS CONTRARY TO LAW, FACTS AND IN THE C IRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOMETAX (APPEALS) HAS ERRE D IN CONFIRMING THE DISALLOWANCE OF FOREIGN AGENTS COM MISSION ON THE APPLICATION OF SECTION 195 R.W.S 40(A)(I) OF T HE ACT IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSI GNING PROPER REASON AND JUSTIFICATION. 2 ITA NO.3018/CHNY/2018 3. THE COMMISSIONER OF INCOMETAX (APPEALS) FAILED TOAPPRECIATE THE PROVISIONS OF SECTION195 OF THE A CT HAD NO APPLICATION TO THE FACTS OF THE CASE AND CONSEQUENT LY OUGHT TO HAVE APPRECIATED THAT DISALLOWANCE OF THE COMMISSIO N IN THE COMPUTATION OF TAXABLE TOTAL INCOME WAS WRONG, ERRO NEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 4. THE L EARNED CIT(A) FAILED TO APPRECIATE THAT THE DECISIO NS CITED TO SUPPORT THE STAND ON THE NON-APPLICABILIT Y OF THE PROVISIONS OF SECTION 195 OF THE ACT WERE COMPLETEL Y OVERLOOKED AND FURTHER OUGHT TO HAVE APPRECIATED TH AT HAVING NOT EXAMINED THE NATURE OF TRANSACTION WHILE UNNECE SSARILY HARPING UPON PRODUCTION OF DOCUMENTATION, THE FINDI NGS IN PARA 4.3.4 OF THE IMPUGNED ORDER CONSEQUENTLY WERE NOT CORRECT AND IMPROPER. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TOAPPRECIATE THAT THERE WAS NO PROPER OPPORTUNITYG IVEN BEFORE PASSING OF THE IMPUGNED ORDER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE WOUL D BE NULLITY IN LAW. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ROUGH S TEEL FORGINGS HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT Y EAR 2009-10 ON 29.09.2009 DECLARING LOSS OF ` 22,85,77,935/-. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN COMP LETED UNDER SECTION143(3) OF THE INCOME TAX ACT,1961 (HEREINAF TER REFERRED TO AS THE ACT) ON 16.12.2011 AND DETERMINED TOTAL LO SS AT ` 22,38,83,013/- BY MAKING ADDITIONS TOWARDS DISALLOW ANCE OF OVERSEAS COMMISSION U/S.40(A)(I) OF THE ACT, FOR NO N-DEDUCTION OF TAX AT SOURCE U/S.195 OF THE ACT. THE ASSESSEE CARRIED THE MATTER IN 3 ITA NO.3018/CHNY/2018 APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, BUT CO ULD NOT SUCCEED. THE LEARNED CIT(A), FOR THE DETAILED REASONS RECORD ED IN HIS APPELLATE ORDER DATED 25.09.2018, CONFIRMED THE ADD ITIONS MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF OVERS EAS COMMISSION U/S.40(A)(I) OF THE ACT, FOR NON-DEDUCTION OF TDS U/S.195 OF THE ACT, ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH REGARD TO THE NATURE OF SERVICES RENDERED BY THE NO N-RESIDENT PAYEE TO WHOM COMMISSION WAS PAID. FURTHER, NO COPY OF AG REEMENT WAS FURNISHED TO SHOW THAT THE ASSESSEE HAS ENTERED INT O ANY AGREEMENT SPECIFYING THE NATURE OF SERVICES TO BE RENDERED BY NON-RESIDENT AGENT. IN THE ABSENCE OF AFORESAID BASIC DATA AN D DETAILS, THE ASSESSEES CLAIM THAT COMMISSION PAID WAS NOT CHARG EABLE TO TAX IN INDIA IS NOT ESTABLISHED. THEREFORE, THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE OVERSEAS COMMISSION U/S.40(A)(I) OF THE ACT, FOR NON-DEDUCTION OF TDS U/S.195 OF THE ACT. AGGRIEVED BY THE LEARNED CIT(A) ORDER, THE ASSESSEE IN APPEAL BEFORE US. 4. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF OVERS EAS COMMISSION PAID TO FOREIGN AGENTS U/S.40(A)(I) OF THE ACT, FOR NON-DEDUCTION OF TDS U/S.195 OF THE ACT, WITHOUT APPRECIATING THE FA CT THAT 4 ITA NO.3018/CHNY/2018 COMMISSION PAYMENT TO NON-RESIDENT AGENTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA ARE NOT LIABLE TO TAX IN IND IA ON THEIR INCOME AND CONSEQUENTLY, THE QUESTION OF DEDUCTION OF TDS U/S.195 OF THE ACT DOES NOT ARISE. THE LEARNED CIT(A) WITHOUT APP RECIATING THESE FACTS HAS CONFIRMED THE ADDITIONS MADE BY THE ASSES SING OFFICER BY HOLDING THAT NO DETAILS HAVE BEEN FILED, BUT THE FA CT REMAINS THAT THE ASSESSEE HAS SUBMITTED NECESSARY DETAILS TO PROVE THAT COMMISSION HAS BEEN PAID FOR RENDERING SERVICES IN CONNECTION WITH EXPORT SALES AND THE PERCENTAGE OF COMMISSION AND THE CONSEQUENTIAL AMOUNTS ARE SPECIFIED IN THE EXPORT I NVOICE ITSELF. 5. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) HAVE BR OUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE ASSESSE HAS FAILED TO FURNISH EVEN BASIC DETAILS TO PROVE THAT RENDERING OF SERVICES BY NON -RESIDENT PAYEE TO ESTABLISH THE FACT THAT THE NATURE OF PAYMENTS MADE TO NON-RESIDENT AGENTS ARE OUTSIDE THE SCOPE OF TAXATION IN INDIA N TAX LAWS. THEREFORE, THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) HAVE RIGHTLY DISALLOWED THE OVERSEAS COMMISSION PAID TO NON-RESIDENT AGENTS U/S.40(A)(I) OF THE ACT, FOR NON-DEDUCTION O F TDS U/S.195 OF THE ACT. ALTHOUGH, THE ASSESSEE HAS RELIED UPON VA RIOUS DECISIONS 5 ITA NO.3018/CHNY/2018 INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE PVT. LTD. VS.CIT (2010 ) 327 ITR 356 (SC), BUT THOSE CASE LAWS ARE RENDERED UNDER PECULI AR FACTS OF THE SAID CASE AND CANNOT BE UNIVERSALLY APPLIED TO EACH AND EVERY CASE TO DECIDE WHETHER THE PAYMENT MADE TO NON-RESIDENT PAYEE ARE LIABLE FOR TDS U/S.195 OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS A WELL SETTLED PRINCIPLES OF LAW THAT ANY PAYMENT MADE TO NON-RESIDENT WHICH IS NOT IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES AS DEFINED U/S.9(1)(VII) OF THE ACT ARE NO T LIABLE TO TAX IN INDIA, IN CASE, THE NON-RESIDENT DO NOT HAVE PERMAN ENT ESTABLISHMENT IN INDIA OR NO BUSINESS CONNECTION I N INDIA. THIS PRINCIPLE IS WELL SETTLED AND LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE PVT. LT D. VS.CIT (SUPRA), WHERE THE HONBLE COURT AFTER CONSIDERING THE RELEVANT PROVISIONS OF SECTION 195 OF THE ACT CLEARLY HELD T HAT PAYMENTS MADE TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT IN THE N ATURE OF ROYALTY AND THE SAME DID NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA AND THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT AN Y TAX AT SOURCE. 6 ITA NO.3018/CHNY/2018 THE JURISDICTIONAL HIGH COURT OF MADRAS IN THE CAS E OF M/S. FAIZAN SHOES PVT.LTD (2014) 367 ITR 155 HAS CONSIDERED AN IDENTICAL ISSUE AND HELD THAT EXPORT COMMISSION PAID TO NON-R ESIDENT AGENTS FOR RENDERING SERVICES OUTSIDE INDIA IS NOT LIABLE TO TAX IN INDIA, IF SUCH NON-RESIDENT AGENTS DO NOT HAVE ANY PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA AND C ONSEQUENTLY WITHHOLDING TAX AS PER SECTION 195 OF THE ACT HAV E NO APPLICATION AND HENCE, NO EXPENDITURE SHOULD BE DISALLOWED U/S .40(A)(I) OF THE ACT. IN THIS CASE, ALTHOUGH THE LOWER AUTHORITIES D ISALLOWED THE OVERSEAS COMMISSION PAID TO NON-RESIDENT AGENTS FOR RENDERING SERVICES OUTSIDE INDIA ON THE GROUND THAT NO BASIC DETAILS HAVE BEEN FILED TO PROVE RENDERING OF SERVICES BY NON-RESI DENT AGENTS, BUT THE FACT REMAINS THAT THE ASSESSEE HAS FILED NECESSARY DETAILS INCLUDING PERCENTAGE OF COMMISSION AND CONSEQUENTIAL AMOUNTS PAID TO THEM BY FILING EXPORT INVOICES, WHERE THE RATE OF COMMIS SION AND AMOUNT HAS BEEN SPECIFIED. THE ASSESSEE HAS ALSO FILED NE CESSARY DETAILS TO PROVE THAT SERVICES RENDERED BY NON-RESIDENT AGE NTS ARE NOT LIABLE TO TAX IN INDIA BECAUSE THEY DO NOT HAVE ANY PERMAN ENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA. THER EFORE, WE ARE OF THE CONSIDERED VIEW WHEN OVERSEAS COMMISSION PAYMEN T MADE TO 7 ITA NO.3018/CHNY/2018 NON-RESIDENT AGENTS FOR RENDERING SERVICES OUTSIDE INDIA IS NOT LIABLE TO TAX INDIA UNDER THE PROVISIONS OF SECTIO N 9(1)(VII) OF THE ACT, THEN THE QUESTION OF DEDUCTION OF TDS ON THE SAID PAYMENT U/S.195 OF THE ACT DOES NOT ARISE AND HENCE, THE COMMISSI ON PAYMENT TO THE SAID NON-RESIDENT AGENTS CANNOT BE DISALLOWED U/S.40(A)(I) OF THE ACT FOR FAILURE TO DEDUCT TDS. THE ASSESSING O FFICER AS WELL AS THE LEARNED CIT(A), WITHOUT APPRECIATING THE FACTS SIMPLY DISALLOWED THE OVERSEAS COMMISSION PAYMENTS MADE TO NON-RESID ENT AGENTS U/S.40(A)(I) OF THE ACT. HENCE, WE DIRECT THE ASSE SSING OFFICER TO DELETE THE ADDITION MADE TOWARDS DISALLOWANCE OF OV ERSEAS COMMISSION PAID TO NON-RESIDENT AGENTS U/S.40(A)(I) OF THE ACT. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2020 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G. MANJUNATHA ) / VICE-PRESIDENT $ / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 9 TH NOVEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .