Shri Pankaj A.Shah, Baroda V. The Income tax Officer,Cent.Ward-1<, Baroda

ITA 3065/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6037 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Business income; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 3065 /AHD/2010 (ASSESSMENT YEAR: 2007-08) SHRI PANKAJ A SHAH 103-104, OPAL SQUARE, R.C. DUTT ROAD, ALKAPURI, BARODA V/S THE ITO, WARD-1, BARODA (APPELLANT) (RESPONDENT) PAN: ALNPS3416 Q APPELLANT BY : SHRI TUSHAR P. HEMANI, A.R . RESPONDENT BY : SHRI B.L. YADAV. D.R. ( )/ ORDER DATE OF HEARING : 17-06-2014 DATE OF PRONOUNCEMENT : 27 -06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-IV, AHMEDABAD DATED 03.08.2010 FOR A.Y. 2007-08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A INDIVIDUAL STATED TO BE ENGAGED IN TH E BUSINESS OF MANUFACTURING OF CHEMICALS. ASSESSEE FILED HIS RETU RN OF INCOME FOR A.Y. 2007-08 ON 29.10.2007 DECLARING TOTAL INCOME OF RS. 51,19,360/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE A SSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 30.12.2009 AN D THE TOTAL INCOME ITA NO 3065/ AHD/2010 . A.Y. 2007- 08 2 WAS DETERMINED AT RS. 57,40,744/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 03.08.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (A) HAS ERRED IN NOT ADMITTING THE CONTENTION OF THE APPELLANT AND THEREBY CONFIRMING THE DISALLOWANCE OF COMMISSION PAID TO NON RESIDENT INDIAN U/S 40 (A) (I) RWS 195 OF THE ACT O F RS. 1,67,859/-AS MADE BY THE LEARNED AO. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT (A) HAS ERRED IN TREATING THE EXPORT COMMISSION PAID TO NON RESIDENT INDIAN WITHOUT DEDU CTING TAX AT SOURCE IS COVERED U/S 40 (A) (I) WITHOUT CONSIDERING VARIOUS SUBMISSIONS, EVIDENCES AND SUPPORTING PLACED ON RECORD DURING THE COURSE OF PROCEEDINGS. 3. THAT ON FACTS OF THE CASE, PAYMENT IS MADE FOR FACI LITATING EXPORT BUSINESS AND INCOME OF NON RESIDENT PERSON ENGAGED FOR FACILITATING EXPORT BUS INESS IS NOT DEEMED TO ACCRUE OR ARISE OR DEEMED TO BE ACCRUE OR ARISE IN INDIA. 4. THAT ON FACTS OF THE CASE, A NON RESIDENT AGENT OF INDIAN EXPORTER OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA, THEREFORE IT CA NNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA WITH THE RESULT THAT S UCH PAYMENT IS NOT TAXABLE IN INDIA. THUS, WHERE SUCH A NONRESIDENT WAS PAID EXPORT COMMISSION, TAX IS NOT DEDUCTIBLE AT SOURCE. 4. THOUGH THE ASSESSEE HAS RAISED VARIOUS GROUNDS, THE ONLY EFFECTIVE ISSUE IS ABOUT ADDITION MADE UNDER SECTION 40(A)(I). 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD PAID COMMISSION TO TWO PARTIES SITUATED OUTSIDE INDIA, AGGREGATING TO RS. 1,67,859/- BUT HAD NOT DEDUCTED TDS ON SUCH PAY MENT. IN RESPONSE TO THE QUERY RAISED BY A.O, ASSESSEE INTERALIA SUBMITT ED THAT THE PARTIES TO WHOM THE COMMISSION HAVE BEEN PAID HAVE PERMANENT E STABLISHMENT OVERSEAS AND THE SERVICES HAVE ALSO BEEN PROVIDED O VERSEAS AND THEY HAVE NO BRANCHES OR REPRESENTATIVE IN INDIA AND THEREFOR E ON THE COMMISSION PAID TO THEM NO TDS WAS APPLICABLE. THE SUBMISSIO NS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. A.O WAS OF THE VIEW THAT THE COMMISSION INCOME OF THE FOREIGN PERSON WAS CHARGEA BLE TO TAX IN INDIA AS PER THE PROVISIONS OF SECTION 9 & 5 OF THE I.T. ACT. FURTHER THE ITA NO 3065/ AHD/2010 . A.Y. 2007- 08 3 COMMISSION WAS LIABLE FOR TDS UNDER SECTION 195 OF THE ACT. SINCE THE ASSESSEE HAS NOT DEDUCTED TDS, THE COMMISSION PAID TO NON RESIDENT WAS NOT ALLOWABLE U/S. 40(A)(I) R.W.S. 195 OF THE ACT A ND ACCORDINGLY HE ADDED THE SAME TO THE INCOME. AGGRIEVED BY THE ORDER OF A .O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE ORDER O F A.O BY HOLDING AS UNDER:- 2.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LXL COUNSEL AS WELL AS THE FACTS OF THE CASE. THERE IS NO SUBSTANCE IN THE SUBMISSION OF THE LD. COUNSEL. THE COMMISSION WAS PAID BY AN INDIAN COMPANY FOR THE SERVICES RENDERED BY THE COMMISSION AGENTS FOR THE INDIAN COMPANY. THE SAID PAYMENT OF COMMISSION IS SUBJECT TO TDS AS PER PROV ISIONS OF SEC. 195 OF THE ACT. IF NO TAX WAS DEDUCTIBLE, THE APPELLANT COMPANY WAS REQUIRED TO G ET A CERTIFICATE U/S 195(3) OF THE ACT. THERE IS INBUILT SYSTEM OF NON-DEDUCTION OF TAX OR LESS DEDU CTION OF TAX IN THE PROVISIONS OF SEC. 195 OF THE A CT. THE APPELLANT, IN CONTRAVENTION OF THE PROVISIONS P AID THE COMMISSION TO THE NON RESIDENTS AND THEREFORE, THE AMOUNT OF COMMISSION PAID WITHOUT TD S IS DISALLOWANCE U/S. 40(A)(I) OF THE ACT. THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER IS AS PER LAW AND I HAVE NO REASON TO INTERFERE IN HIS FINDING. THE ADDITION OF RS. 1,67,859/- IS SUSTAINE D. THE FIRST GROUND OF APPEAL IS ACCORDINGLY DISMISSED. 6. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. BEFORE US. THE LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A). IT WAS FURTHER SUBMITTED THAT THE SALES COMMISSION WAS PAID TO NON RESIDENTS FOR BOOKING SALES ORDER ON BEHALF OF THE ASSESSEE OUT OF INDIA BOTH THE PARTIES HAVE NOT PROVIDED ANY TECHNICAL SE RVICES AND THEY HAVE NO PERMANENT ESTABLISHMENT IN INDIA. IT WAS FURTHER SUBMITTED THAT THE AGENTS ONLY BOOKED SALES ORDER ON BEHALF OF ASSESSE E AND THE ASSESSEE HAS NOT RECEIVED ANY TECHNICAL SERVICES. IT WAS FUR THER SUBMITTED THAT THE PROVISIONS OF SECTION 9(1)(VI)/(VII) HAVE NO APPLIC ATION AS THE AMOUNT THAT WAS PAID WAS NEITHER ROYALTY NOR FEES FOR TECHNICAL SERVICES BUT WAS A BUSINESS INCOME. IT WAS ALSO SUBMITTED THAT THE FO REIGN SALES AGENTS HAVE NO BUSINESS ACTIVITY OR PERMANENT ESTABLISHMENT IN INDIA. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAD RELIED ON CBDTS CIRCULA R NO. 786 DATED 07.02.2000 FOR NON DEDUCTION OF TAX AT SOURCE AND T HE CIRCULAR WAS IN ITA NO 3065/ AHD/2010 . A.Y. 2007- 08 4 FORCE AT THAT TIME. THE LD. A.R. FURTHER PLACED REL IANCE ON THE DECISION OF THE AHMEDABAD TRIBUNAL IN THE CASE OF DCIT VS. PANC HMAHAL STEEL LTD. ITA NO. 1443 & 1444/AHD/2010 ORDER DATED 20.08.2010 . THE LD. D.R. ON THE RELIED ON THE ORDER OF A.O AND CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PAID COMMISSION TO NON RESIDENT AND NO TDS WAS DEDUCTED WHILE MAKING THE P AYMENT FOR THE REASON THAT THE PARTIES TO WHOM THE COMMISSION WAS PAID DO NOT HAVE PERMANENT ESTABLISHMENT IN INDIA NOR HAVE THEY PROV IDED ANY TECHNICAL SERVICES. THE AFORESAID SUBMISSIONS OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE BY BRINGING ANY CONTRARY MA TERIAL ON RECORD. ASSESSEE HAD ALSO RELIED ON CIRCULAR NO. 786 DATED 07.02.2000 FOR NON DEDUCTION OF TDS. AS PER THE AFORESAID CIRCULAR, T HE ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS U/S. 195 WITH REGARD TO PAYM ENT OF COMMISSION TO FOREIGN AGENTS. IN THE PRESENT CASE, ASSESSEE HA D FILED THE RETURN OF INCOME IN ACCORDANCE WITH THE CIRCULAR PREVAILING A T THAT TIME. WE FIND THAT AN IDENTICAL ISSUE WAS BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. PANCHMAHAL STEEL LTD. (SUPRA), THE CO-ORDINATE BENCH OF TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE BY HOLDING AS UNDER:- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MA TERIAL AVAILABLE ON RECORD. THE ASSESSEE SPECIFICALLY PLEADED BEFORE THE LEARNED CIT(A) THAT TAX WAS NOT DEDUCTED BECAUSE INCOME TAX IS DEDUCTIBLE AT SOURCE ONLY FROM PAYMENTS WHICH ARE C HARGEABLE TO TAX UNDER INCOME TAX ACT. IT WAS SUBMITTED THAT THE AMOUNT WAS PAID FOR COMMISSION I N FOREIGN CURRENCY WAS NOT CHARGEABLE TO TAX IN INDIA BECAUSE THESE PAYMENTS REPRESENTED BUSINESS I NCOME OF NON-RESIDENT AND THAT NONE OF THE PAYEES HAVE PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA WITHIN THE MEANING OF SECTION 9 OF THE IT ACT. IT WAS ALSO EXPLAINED THAT NON-RESIDENTS WERE NOT CHARGEABLE TO TAX IN INDIA DUE TO VARIOUS DOUBL E TAXATION AGREEMENTS. IT WAS ALSO EXPLAINED THAT PAY MENTS WERE NOT FOR ROYALTY OR TECHNICAL KNOW-HOW AND THEREFORE, TAX WAS NOT LIABLE TO BE DEDUCTED. I T WAS ALSO SUBMITTED THAT THE ASSESSEE DID NOT DEDU CT TAX BECAUSE OF THE EXISTING CIRCULAR ISSUED BY CBDT . THEREFORE, NO DISALLOWANCE COULD BE MADE. THE LEARNED DR HOWEVER, SUBMITTED THAT EARLIER BOARD CI RCULAR RELIED UPON BY THE ASSESSEE HAS BEEN WITHDRAWN WITH IMMEDIATE EFFECT VIDE SUBSEQUENT CIR CULAR DATED 23-10-2009; THEREFORE, EARLIER ITA NO 3065/ AHD/2010 . A.Y. 2007- 08 5 CIRCULARS WOULD NO LONGER SURVIVE. HOWEVER, WE DO N OT AGREE WITH THE SUBMISSIONS OF THE LEARNED DR BECAUSE LATER CIRCULAR DATED 23-10-2009 WAS HAVING NO RETROSPECTIVE EFFECT AND ALSO COULD NOT HAVE THE EFFECT TO THE ASSESSMENT YEARS WHERE THE ASSESS EE FILED THE RETURN OF INCOME ON TIME IN ACCORDANCE WITH THE EXISTING BOARD CIRCULAR. THEREFORE, THERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE NOT TO DEDUCT TDS IN SUCH CIRCUMSTANCES BASED UPON ITS OPI NION ON THE CBDT CIRCULARS 9. IN VIEW OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE IN PRESENT CASE. WE THEREFORE DELETE TH E DISALLOWANCE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN OPEN COURT ON 27 -06 - 2014. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD