JTK INTERNATIONAL, MUMBAI V. CIT 18, MUMBAI

ITA 3032/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75842 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 11-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment
• Section: 143(3); 263

Judgement Text

JTK INTERNATIONAL 1 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO. 3032/MUM/2013 ASSESSMENT YEAR.2008-09 JTK INTERNATIONAL F-118/117, DADAR MAINSH MARKET, SENAPATI BAGPAT MARG, DADAR WEST MUMBAI 400 028. VS. COMMISSIONER OF INCOME TAX - 18, MUMBAI, PIRAMAL CHAMBERS, LALBAUG, MUMBAI. PAN: AADFJ1988R APPELLANT RESPONDENT A SSESSEE BY SHRI MEHUL SHAH RE VENUE BY SHRI S.D. SRIVASTAVA ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST REV ISION ORDER DATED 25.02.2013 OF CIT PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, FOR THE A.Y. 2008-09. THE ASSESSEE HAS RAISED VARIOUS G ROUNDS IN THIS APPEAL. HOWEVER THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX IS JUSTIFIED IN TREATING THE ORDER OF AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND CANCELLI NG IT SO FAR AS IT RELATES TO DATE OF HEARING 11.3.2014 DATE OF PRONOUNCEMENT 21 - 03 - 2014 JTK INTERNATIONAL 2 FOREIGN COMMISSION OF RS. 44,22,146/- DISALLOWED U /S 40(A)(IA) OF INCOME TAX ACT. 2. THE ASSESSMENT IN THIS CASE WAS COMPLETED U/S 14 3(3) ON 25.11.2010. SUBSEQUENTLY ON GOING THROUGH THE RECOR D THE COMMISSIONER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 44,22,146/- ON ACCOUNT OF COMMISSION PAYMENT WHICH HAS BEEN ALLOWE D BY THE AO. THE COMMISSIONER FOUND THAT THE COMMISSION HAS BEEN PAI D TO NON RESIDENT WITHOUT DEDUCTION OF TDS ON THE SAME. ACCORDINGLY I N VIEW OF THE COMMISSIONER AS PER THE PROVISIONS OF SECTION 5(2)( B) R.W.S 9(1)(I) OF THE INCOME TAX ACT, INCOME ARISING TO THE NON RESIDENTS ON ACCOUNT OF COMMISSION PAYABLE TO THEM IS DEEMED TO ACCRUE AND ARISE IN INDIA AND, THEREFORE, TAXABLE. HENCE THE COMMISSIONER FOUND TH AT THE ENTIRE EXPENSES SHOULD HAVE BEEN DISALLOWED U/S 40(A)(IA) OF THE IN COME TAX ACT. A SHOW CAUSE NOTICE U/S 263 WAS ISSUED TO THE ASSESSEE. AF TER CONSIDERING THE REPLY OF THE ASSESSEE THE COMMISSIONER HELD THAT TH E ORDER PASSED U/S 143(3) DATED 25.11.2010 IS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE AND SAME WAS CANCELLED. THE AO WAS DIRECTED TO PASS A FRESH ASSESSMENT ORDER KEEPING IN MIND OBSERVATION AND FI NDING OF THE COMMISSIONER IN THE IMPUGNED ORDER. 3. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE COMMISSIONER HAS PROCEEDED ON THE WRONG ASSUMPTION OF THE PROVISIONS OF SECTION 9(1)(I) CLAUSE V, VI AND VII BY TREATING T HE COMMISSION INCOME AS INCOME DEEMED TO ACCRUE AND ARISE IN INDIA BY VIRTU E OF THE AMENDMENT BROUGHT INTO SECTION 9 VIDE FINANCE ACT 2010. THE L D. AR SUBMITTED THAT JTK INTERNATIONAL 3 THIS ISSUE IS NOW COVERED BY THE DECISION OF SPECIA L BENCH OF THIS TRIBUNAL IN CASE OF ADIT VS. M/S CLIFFORD CHANCE. HE FURTHER SUBMITTED THAT THE COMMISSIONS COULD NOT BE TREATED AS FEE FOR TECHNIC AL SERVICES AND, THEREFORE, IT DOES NOT FALL IN THE EXPLANATION INSE RTED BY FINANCE ACT 2010 WITH RESPECT TO CLAUSE V, VI AND VII. 4. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E IMPUGNED ORDER OF THE COMMISSIONER. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CARE FUL PERUSAL OF THE RECORD, WE NOTE THAT THE PAYMENT OF COMMISSION TO T HE NON RESIDENTS DOES NOT FALL UNDER THE CATEGORY OF INCOME BY WAY OF IN TEREST INCOME BY WAY OF ROYALTY OR INCOME BY WAY OF FEE FOR TECHNICAL SERVICES IN TERMS OF CLAUSE V, VI AND VII OF SECTION 9(1) OF THE INCOME TAX ACT. THE EXPLANATION INSERTED BY FINANCE ACT 2010 IS ONLY IN RESPECT OF THE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE V, VI AND VII OF SECTION 9(1) AS HELD BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF M /S CLIFFORD CHANCE (SUPRA) IN PARA 26 AS UNDER:- 26. KEEPING IN VIEW THE DECISION OF HON'BLE SUPREME COU RT IN THE CASE OF CARBORANDUM CO. (SUPRA) WHICH WAS IN THE CONTEXT OF SECTION 42 OF THE INCOME TAX ACT, 1922 WHICH CORRESPONDS TO SECTION 9 (1 )(I) OF THE INCOME TAX ACT, 1961 AND IN THE CASE OF TOSHOKU LTD . (SUPRA) WHICH WAS IN THE CONTEXT OF SECTION 9(I)(I) ITSELF, THE HON ' BLE BOMBAY HIGH COURT, IN ASSESSEE'S CASE FOR A. Y. 1996-97, HELD THAT THE PR OVISIONS OF SECTION 9( L)(I) HAVING BEEN CONSTRUED BY THE HON'BLE SUPREME COURT, THE INTERPRETATION THEREOF WAS NO LONGER RES-INTEGRA AN D THE ISSUE WAS DECIDED BY APPLYING SUCH INTERPRETATION OF SECTION 9( L)(I) OF THE ACT WHICH JTK INTERNATIONAL 4 WAS HELD TO BE APPLICABLE IN THE CASE OF THE ASSESS EE FOR THE DETERMINATION OF ITS TAXABLE INCOME IN INDIA. IT IS NO DOUBT TRUE THAT REFERENCE WAS ALSO MADE BY THE HON'BLE BOMBAY HIGH COURT TO THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF I SHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. (SUPRA) WHICH WAS IN THE CONT EXT OF SECTION 9{ L)(VII)(C) OF THE ACT. HOWEVER THEIR LORDSHIPS WERE CONSCIOUS OF THE FACT THAT THE SAID DECISION WAS RENDERED IN THE CONTEXT OF SECTION 9(L)(VII)(C) OF THE ACT AS IS EVIDENT FROM PARA 44 OF THE ORDER. IT WAS ALSO OBSERVED BY THE HON'HLE BOMBAY HIGH COURT, IN PARA 47 OF THE OR DER, THAT WITH THE UNDERSTANDING OF LAW LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. (SUPRA), IF ONE TURNS TO THE FACTS OF THE CASE IN HAND AND EXAMINES THEM ON THE TOUCHSTONE OF SECTION 9(L)(VII)(C), SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA, MUST BE UTILIZED IN INDIA AND RENDE RED IN INDIA. WE THEREFORE FIND IT DIFFICULT TO CONCUR WITH THE VIEW EXPRESSED BY THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF LINK LATERS LLP (SUPRA) THAT THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN ASSESS EE'S CASE FOR A.Y. 1996-97 IS BASED ON THE LEGAL PREMISE OF INTERPRETA TION OF SECTION 9( L)(VII) AND THE SAID PREMISE NO LONGER HOLDS GOOD I N VIEW OF AMENDMENT MADE BY THE FINANCE ACT, 2010 IN SECTION 9 WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE, 1976. IN OUR OPINION, THE AMENDMENT MADE BY THE FINANCE ACT 2010 IN SECTION 9 WITH RETROSPECTIVE EFFECT FROM IST JUNE, 1976, WHICH IS APPLICABLE ONLY IN THE CASES COVERED UNDER CLAUSE (V), (VI) OR CLAUSE (VII ) OF SECTION 9(1) AND NOT CLAUSE (I) OF SECTION 9(1), THUS HAS NOT NEGATE D THE DECISION OF HON 'BLE BOMBAY HIGH COURT IN THE CASE OF THE ASSESSEE FOR A.Y. 1996-97 AND THE SAID DECISION RENDERED IN THE CONTEXT OF SE CTION 9(1)(I) STILL HOLDS GOOD EVEN AFTER THE SAID AMENDMENT IN SO FAR AS THE ASSESSEE'S CASE IS CONCERNED. WE THEREFORE ANSWER THE QUESTION NO. 1 REFERRED TO THIS SPECIAL BENCH IN THE NEGATIVE I.E. IN FAVOUR O F THE ASSESSEEE. 6. SINCE THE PAYEE DOES NOT HAVE ANY PERMANENT ESTA BLISHMENT IN INDIA AND, THEREFORE, THE INCOME BY WAY OF COMMI SSION FOR THE JTK INTERNATIONAL 5 SERVICES RENDERED OUTSIDE INDIA IS NOT ASSESSABLE T O TAX IN INDIA. THUS WE NOTE THAT THE ISSUE ON MERIT IS COVERED IN FAVOUR OF THE ASSESSEE AND, THEREFORE, THE IMPUGNED REVISION ORDE R IS NOT SUSTAINABLE AND THE SAME IS SET ASIDE/QUASHED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/03/ 2014 SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 21/03/2014 SKS SR. P.S COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI