DCIT 2(2), MUMBAI V. KNIGHT FRANK (I) P. LTD, MUMBAI

ITA 3256/MUM/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4565 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MISHRA; RAJESH KUMAR YADAV
• Assessee Lawyers: M M GOLWALA
• Keywords: Opportunity of being heard; Services rendered outside India; Retrospective amendment; Question of law; TDS; Set aside
• Section: 43B; 5(2); 40(a)(ia); 195; 6; 12; 2; 11; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI G.S. PANNU (VP ) AND SHRI RAM LAL NEGI (JM) ITA NO. 2410 /MUM/20 1 3 ASSESSMENT YEAR: 2009 - 2010 M/S KNIGHT FRANK (I) PVT. LTD., C/O KALYANIWALLA & MISTRY, ARMY & NAVY BUILDING, 3 RD FLOOR, 148 M.G. ROAD, FORT, MUMBAI - 400001 PAN: AAACK1544J VS. THE ADDL. COMMISSIONER OF INCOME TAX 2(2), ROOM NO. 548, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI (APPELLANT) (RESPONDENT) & ITA NO. 3256 /MUM/201 3 ASSESSMENT YEAR: 2009 - 20 10 THE DCIT 2(2), ROOM NO. 545, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S KNIGHT FRANK (INDIA) PVT. LTD. PAVILLE HOUSE, NEAR TWIN TOWERS, OFF. VEER SAVARKAR MARG, PRABHADEVI, MUMBAI - 400025 PAN: AAACK1544J (APPELLANT) (RESPONDENT) ASSE SSEE BY : SHRI M.M. GOLW ALA & AMEY WAGLE ( A R) REVENUE BY : SHRI RAJESH KUMAR YADAV & S.K. MISHRA (D R) DATE OF HEARING: 21/12 /201 8 DATE OF PRONOUNCEMENT: 18 / 03 /201 9 O R D E R PER RAM LAL NEGI, JM THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DATED 14.01.2013 PASSED BY THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) - 5 , MUMBAI , FOR THE ASSESSMENT YEAR 2009 - 2010, WHEREBY THE LD. 2 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 CIT (A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO. 2410/MUM/2013 (ASSESSMENT YEAR: 2009 - 10) 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY AN INTERNATIONAL PROPERT Y CONSULTANT , RENDERING REAL ESTATE ADVISORY AND PROPERTY MANAGEMENT SERVICES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME AT RS. 9,02,26,830/ - . THE CASE WAS SELECTED FOR SCRUTINY AND AFTER HEARING THE ASSESSEE ASSESSMENT ORDER U/S 143 (3) WAS PASSED DETERMINING THE TOTAL INCOME AT RS. 6,69,00,970/ - , AFTER MAKING ADDITION OF RS. 66,74,134/ - , ON ACCOUNT OF TREATING SERVICE TAX UNDER SECTION 43B OF THE ACT , AIR ITS, TDS DIFFERENCE AND DISALLOWANCE MADE U/ S 40(A)(IA) OF THE ACT. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. HOWEVER, CONFIRMED THE ADDITION S MADE BY THE AO. THE LD. CIT(A) FURTHER HELD THAT SECTION 43B IS A SEPAR ATE PROVISION , I T HAS NOTHING TO DO WITH THE ADDITIONS U/S 145A AND AS SUCH DOES NOT COME INTO PLAY SO FOR AS THE ADDITIONS U/S 145A IS CONCERNED. 3 . THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUND S OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. BOTH THE LOWER AUTHORITIES ERRED IN HOLDING THAT SERVICE TAX WAS REQUIRED TO BE TREATED AS A TRADING RECEIPT IN THE CASE OF THE APPELLANT UNDER SECTION 145 - A RS. 35,11,883/ - . 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HO LDING THAT SECTION 43B DOES NOT COME INTO PLAY AS REGARDS ADDITIONS UNDER SECTION 145A. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN MAKING AN ENHANCEMENT WITHOUT ISSUING ANY NOTICE TO THE 3 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 APPELLANT, AS IS STATUTORILY REQUIRED UNDER SECTION 2 51 (2) OF THE INCOME TAX ACT. 4. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW, THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE ADDITION MADE TO THE TOTAL INCOME ON ACCOUNT OF SERVICE TAX. 5. THE L EARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DELETING THE ADDITION OF RS. 8,18,113/ - ON ACCOUNT OF AIR DIFFERENCE. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING COMMISSION PAID TO NEWMARK KNIGHT FRANK UNDER SECTION 40( A)(IA) RS. 23,44,138/ - . 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN INVOKING THE RETROSPECTIVE INSERTION OF AN EXPLANATION IN SECTION 9 TO UPHOLD THE DISALLOWANCE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO CONSIDER THAT A RE TROSPECTIVE AMENDMENT CANNOT IMPOSE A WITHHOLDING TAX LIABILITY ON THE APPELLANT. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING CIRCULAR NO. 786 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. 9. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ERRED IN HOLDING THAT THE APPELLANT HAD FAILED TO SHOW HOW THE COMMISSION WAS NOT TAXABLE UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA. 10. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES, THE APPELLANT SUBMITS THE DISALLOWANCE OF R S. 23,44,138/ - IS UNJUSTIFIED AND IS REQUIRED TO BE DELETED. 11. BOTH THE LOWER AUTHORITIES ERRED IN NOT GRANTING FULL CREDIT FOR TDS RS. 6,50,46,786/ - , AS CLAIMED IN THE RETURN OF INCOME. 4 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 4. GROUND NO. 1 TO 4 PERTAIN TO THE ISSUE RELATING TO SERVICE TAX. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE AO HAD WRONGLY APPLIED THE PROVISIONS OF SECTION 145A TO SERVICE TAX AND TREATED THE SERVICE TAX COMPONENT AS TRADING RECEIPTS AND TREATED SERVICE TAX AS LIABILITY, THE LD. CIT (A) OUGH T TO HAVE SET ASIDE THE ASSESSMENT ORDER. THE LD. COUNSEL FURTHER SUBMITTED THAT THE SERVICE TAX IS NOT TAX DUTY, CESS OR FEE PAID QUA THE ASSESSEE. THEREFORE, THE PROVISION S OF SECTION 145A DO NOT APPLY TO THE SERVICE TAX. IT HAS BEEN MENTIONED IN THE AUD IT REPORT OF THE ASSESSEE THAT IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE COMPANY , SERVICE TAX RECOVERED FOR PAYMENT TO GOVERNMENT IS NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT BUT IS DEBITED/CREDITED DIRECTLY TO THE SERVICE TAX ACCOUNT. THE LD. COUNSEL FURTHER POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT RENDERED IN THE ASSESSEES OWN CASE ITA NO. 2021/MUM/2011 FOR THE A.Y. 2007 - 08 AND ITA NO 6286/MUM/2011 FOR THE AY 2008 - 09 . TH E LD. COUNSEL FURTHER SUBMITTED THAT HONBLE BOMBAY HIGH COURT HAS CONFIRMED THE FINDINGS OF THE TRIBUNAL IN DEPARTMENTS APPEAL ITA NO. 247 AND 255 OF 2014 . 5 . THE LD. DEPARTMENTAL REPRESENTATIVE (DR) ADMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT AND THE ORDER OF THE HONBLE BOMBAY HIGH COURT , HOWEVER, SUPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW . 6. WE HAVE PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT THE COORDINATE BENCH HAS DECIDED THE IDENTICA L ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSES OWN CASE FOR THE A.Y. AND 2008 - 09 (SUPRA). THE RELEVANT PORTION OF THE ORDER PASSED BY THE COORDINATE BENCH READS AS UNDER: - 7. BEFORE US, THE AR POINTED OUT THAT THE ISSUE HAS BEEN DEALT WITH BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NOBEL & HEWITT (I) PVT. LTD., REPORTED IN 305 ITR 324 AND ACIT VS REAL IMAGE MEDIA TECHNOLOGIES PVT. LTD. REPORTED IN 306 ITR 106 (AT - CHENNAI). IN THIS CASE, THE COORDINATE BENCVH HELD, THAT SERVICE PROVIDER WAS MERELY ACTING AS AN AGENT OF THE 5 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 GOVERNMENT AND WAS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF SERVICE TAX. SINCE , SERVICE TAX WAS NOT PAYABLE BY THE ASSESSEE, RIGOUR OF SECTION 43B OF THE ACT COULD NOT BE APPLIED TO THE CASE OF ASSESSEE .. IN EF FECT, THE MISCHIEF OF SECTION 145A AND 43B, DOES NOT HIT THE ASSESSEE, THEREFORE THE ADDITION OUGHT TO BE DELETED. 8. THE DR RELIED ON THE DECISION OF THE REVENUE AUTHORITIES. 9. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS OF THE REVENU E AUTHORITIES. THE FACT IS THAT THE ASSESSEE IS A SERVICE PROVIDER COMPANY AND PATENTLY, PROVISIONS OF SECTION 145A CANNOT BE MADE APPLICABLE, BECAUSE THE PROVISION WAS SPECIFICALLY INTRODUCED FOR THE PURPOSES OF MANUFACTURE SEGMENT OF BUSINESS BECAUSE SEC TION 145A(A)(II) SUBMITTED BEFORE THE CIT (A) MENTIONS BY THE ASSESSEE BEING GOODS TO THE PLACE OF LOCATION & CONDITIONS AS ON THE DATE OF VALUATION ARE REQUIRED TO BE INCLUDED. 10. IN ANY CASE THE ISSUE IS NOW COVERED BY THE DECISION RELIED UPON BY THE ASSESSEE. 11. RESPECTFULLY FOLLOWING THE DECISIONS, WE SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION. 12. AS A CONSEQUENCE THEREOF THE ADDITION MADE U/S 43B WOULD ALSO BE DELETED, BECAUSE NO LIABILITY ARISES AS SUCH OR ON THE LAST DAY OF THE ACCOUNT PERIOD AND IS ALSO COVERED BY THE DECISIONS AS MENTIONED ABOVE. THE AO IS ALSO DIRECTED TO DELETE THE ADDITION OF RS. 22,00,808/ - AS MADE U/S 43B. AS A RESULT GROUNDS 1 TO 5 ARE ALLOWED. 7. WE FURTHER NOTICE THAT THE HO NBLE BOMBAY HIGH COURT HAS DISMISSED THE APPEAL FILED BY THE DEPARTMENT AGAINST THE ORDER PASSED BY THE COORDINATE BENCH IN THE A SSESSEES OWN CASE FOR THE A.Y. 200 7 - 0 8 AND 2008 - 09. SINCE, THE ISSUE INVOLVED IS COVERED BY THE ORDER OF THE HONBLE HIGH COU RT, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW GROUND NO. 1 TO 4 OF THE ASSESSEES APPEAL . ACCORDINGLY, WE DIRECT THE AO TO DELETE THE ADDITION. 6 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 8. GROUND NO. 5 PERTAINS TO ADDITION OF RS. 8,18,113/ - ON ACCOUNT OF AIR /ITS/TDS DIFFERENCE. DUR ING THE ASSESSMENT PROCEEDINGS, A DIFFERENCE OF RS. 8,18,113/ - WAS NOTICED IN THE INCOME CREDITED TO P&L ACCOUNT AND INCOME PER AIR DATA. ACCORDINGLY, THE ASSESSEE WAS ASKED TO RECONCILE THE SAME AND OFFER EXPLANATION. AO MADE DISALLOWANCE AND ADDED THE S AID AMOUNT TO THE INCOME OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAS FAILED TO OFFER ANY SATISFACTORY EXPLANATION . IN THE FIRST APPEAL, THE LD. CIT (A) RESTORED THE ISSUE TO THE FILE OF AO WITH THE DIRECTION TO VERIFY THE FACTS AND PASS A SPEAKING ORDER AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 9. THE LD. COUNSEL SUBMITTED BEFORE US THAT THE REASON FOR DIFFERENCE WAS DUE TO CERTAIN SERVIC E BILLS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2008 - 09 AND PAID DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. SINCE, THE DIFFERENCE WAS ALREADY BOOKED AND OFFERED AS INCOME IN THE A.Y. 2008 - 09, THE SAME CANNOT BE TAXED AGAIN DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO FURNISHED THE BOOKS FOR THE A.Y. 2008 - 09 SHOWING BILLS OUTSTANDING AS ON 31.03.2008 AND LEDGER OF ACC LTD. PERTAINING TO THE A.Y. 2009 - 10 SHOWING THAT THE BILLS WERE PAID IN THE A.Y. 2008 - 09. IN RESPECT OF THE REMAINING THREE PARTIES BREAK - UP WAS NOT GIVEN BY THE AO TO OFFER PROPER EXPLANATION . T HE LD. COUNSEL FURTHER POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF C.C. CHOKSHI & COMPANY VS. ACIT ITA NO. 6533/MUM/2012 DATED 31.08.2015. 10. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT SINCE THE ASSESSEE HAS SHOWN LESS INCOME, THE AO HAS RIGHTLY MADE ADDITION OF THE DIFFERENCE. MOREOVER , THE LD. CIT (A) HAS SENT BACK THE ISSUE TO AO, NO FURTHER ACTION IS CALLED FOR IN THE MATTER . 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE CONTENTIONS OF THE PARTIES. AS POINTED OUT BY THE LD. CIT (A) THE AO HAS MADE ADDITION WITHOUT GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. WE NOTICE THAT THE ASSESSEE HAS GIVEN EXPLANATION IN RESPECT OF THE PARTY ACC 7 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 LTD., HOWEVER COULD NOT E XPLAIN THE DIFFERENCE IN RESPECT OF THE REMAINING THREE PARTIES. AS ALLEGED BY THE ASSESSEE SINCE THE AO DID NOT PROVIDE THE BREAK - UP IN RESPECT OF THE THREE COMPANIES DESPITE REQUEST MADE BY THE ASSESSEE, THE ASSESSEE COULD NOT EXPLAIN THE SAME BEFORE TH E AUTHORITIES BELOW. WE FURTHER NOTICE THAT THE AO HAS MADE ADDITION ON THE BASIS OF THE AIR DATA WITHOUT CONDUCTING ANY FURTHER ENQUIRY. THE FACTS OF THE DECISION RELIED UPON BY THE ASSESSEE IS DIFFERENT FROM THE FACTS OF THE PRESENT CASE. UNDER THESE CIR CUMSTANCES, WE ARE INCLINED TO AGREE WITH THE LD. CIT (A) THAT THE AO HAS MADE THE ADDITION WITHOUT GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE. HENCE, WE ENDORSE THE FINDINGS OF THE LD. CIT (A) AND DIRECT THE AO TO VERIFY THE FACT AND PASS A SPEAKING ORDE R AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 12. GROUND NO. 6 TO 10 PERTAIN TO DISALLOWANCE OF REFERRAL FEES FOR NON - DEDUCTION OF TAX. DURING ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS. 23,44,138 / - TO M/S NEWMARK KNIGHT FRANK, NEWYARK (NKF) WITHOUT DEDUCTING TDS. ACCORDINGLY, THE AO ASKED TO EXPLAIN AS TO WHY THE ENTIRE AMOUNT SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. THE ASSESSEE CONTENDED THAT FEES PAID CASE IS COVERED BY CIRCULAR NO. 78 6 OF 2000 DATED 07.02.2000 ISSUED BY THE CBDT THEREFORE, THE TAX WAS NOT REQUIRED TO BE DEDUCT TAX AT SOURCE . AO REJECTING THE CONTENTION OF THE ASSESSEE DISALLOWED THE SAID AMOUNT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. IN THE FIRST APPEAL, THE LD. CIT (A) UPHELD THE FINDINGS OF THE AO. 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REFERRAL FEES WAS PAID FOR SERVICES RENDERED OUTSIDE INDIA, WHICH IS COVERED UNDER THE PROVISIONS OF CIRCULAR NO. 786 OF 2000. SINCE, THE NK F HAS NOT DONE ANY ACTIVITY IN INDIA, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE. THE LD. COUNSEL FURTHER INVITED OUR ATTENTION TO RELEVANT PORTION OF THE CIRCULAR AFORESAID, WHICH CONTEMPLATES AS UNDER: - 8 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WOULD ARISES IF THE PAYMENT OF COMMISSION TO THE NON - RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23 DATED 23.07.1969 IS DRAWN, WHERE THE TAXABILITY OF FOREIGN AGENTS OF INDIAN EXPORTERS WAS CON SIDERED ALONG WITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NON - RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA. FURTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS ARE THEREFORE HELD TO BE NOT TAXABLE IN INDIA. THE RELEVANT SECTIONS, NAMELY SECTION 5(2) AND SECTION 9 OF THE INCOME TAX ACT, 1961 NOT HAVING UNDERGONE ANY CHANGE IN THIS REGARD, THE CLARIFICATION IN CIRCULAR NO. 23 SHALL PREVAILS. NO TAX IS THEREFORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON - RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BECO MES ALLOWABLE EXPENDITURE. ON BEING APPRISED OF THIS POSITION, THE COMPTROLLER & AUDITOR GENERAL HAVE AGREED TO DROP THE OBJECTION REFERRED TO ABOVE. 14. THE LD. COUNSEL FURTHER SUBMITTED THAT IN THE CASE OF GUJARAT RECLAIM AND RUBBER PRODUCTS LTD. 38 3 ITR 236 (BOM) , THE JURISDICTIONAL HIGH COURT HAS DISMISSED THE APPEAL OF THE REVENUE HOLDING THAT THE COMMISSION EARNED BY THE NON - RESIDENT AGENT WHO CARRIED ON THE BUSINESS OF SELLING INDIAN GOODS OUTSIDE INDIA, CANNOT BE SAID TO HAVE DEEMED TO BE INCOM E WHICH HAS ACCRUED AND/OR ARISEN IN INDIA. IN THE LIGHT OF THE SAID JUDGMENT, THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE S CASE IS COVERED BY THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT. THE LD. COUNSEL FURTHER CONTENDED THAT THE CIRCULAR NO. 786 WAS A PPLICABLE IN THE CASE OF THE ASSESSEE AND THE AUTHORITIES BELOW HAS WRONGLY DISALLOWED THE CLAIM OF THE ASSESSEE. THE LD. COUNSEL FURTHER RELYING ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HOLCIM SERVICES SOUTH ASIA LTD. VS. DCIT 15 7 ITD 892 (MUM TRIB) SUBMITTED THAT IN THE 9 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 SAID CASE, THE AO DISALLOWED PAYMENT MADE TO NON - RESIDENT WITHOUT DEDUCTING TAX AT SOURCE IN VIEW OF THE EXPLANATION INSERTED UNDER SECTION 9 BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1.6.1976, DISALLOWA NCE WAS HELD NOT JUSTIFIED FOR THE REASONS THAT THE ASSESSEE COULD NOT HAVE VISUALIZED TO DEDUCT TAX IN ABSENCE OF ANY PROVISION PARTICULARLY IN VIEW OF THE FACT THAT THERE WAS ALREADY PREVAILING THE LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE O F ISHIKAWAJMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIT 288 ITR 408 , WHEREIN IT WAS HELD THAT SERVICES RENDERED OUTSIDE INDIA WOULD BE TAXABLE IN INDIA ONLY IF SUCH SERVICES HAD BEEN UTILIZED IN INDIA. THE LD. COUNSEL ALSO RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LTD. 48 TAXMANN.COM 48 (MADRAS) IN SUPPORT OF THE CONTENTION OF THE ASSESSEE . 15. ON THE OTHER HAND, THE LD. DR RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT IN VIEW OF THE EXP LANATION TO SECTION 9 OF THE ACT, THERE IS NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A). SINCE, THE FINDINGS OF THE LD. CIT (A) ARE BASED ON THE PROVISIONS OF LAW, THERE IS NO MERIT IN THE CONTENTION OF THE ASSESSEE. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSED THE MATERIAL ON RECORD INCLUDING THE CASES RELIED UPON BY THE ASSESSEE. WE NOTICE THAT THE AO HAS MADE DISALLOWED U/S 40(A)(IA) HOLDING THAT CIRCULAR NO. 786 IS NOT APPLICABLE TO THE CASE OF ASSESSEE AS THE NATU RE OF PAYMENT WAS NOT EXPORT COMMISSION AND THE CHARGES PAYABLE IS FOR SERVICES RENDERED IN INDIA AND NOT OUTSIDE INDIA. T HE LD. CIT (A) HAS CONFIRMED THE DISALLOWANCE ON THE BASIS OF EXPLANATION TO SECTION 9 INSERTED BY FINANCE ACT, 2010 WITH RETROSPECTIV E EFFECT FROM 01.06.1976. WE NOTICE THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GUJARAT RECLAIM AND RUBBER PRODUCTS (SUPRA) HAS DISMISSED THE APPEAL OF THE REVENUE IN WHICH THE REVENUE HAD RAISED THE SIMILAR GROUND. IN THE SAID CASE, THE RESPONDENT/ASSESSEE HAD MADE PAYMENT OF COMMISSION TO NON - RESIDENT AGENT IN RESPECT OF SALES MADE OUTSIDE INDIA DURING TWO 10 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 ASSESSMENT YEARS. THE AO MADE DISALLOWANCE U/S 40(A)(I ) OF THE ACT FOR NOT DEDUCTING TAX AT SOURCE ON THE GROUND THAT THE CIRC ULA RS NO. 23 OF 1969 AND 786 OF 2000 ISSUED BY THE CBDT WHICH HAD CLARIFIED THAT COMMISSION PAID TO NON - RESIDENT AGENT DOES NOT GIVE RISE TO INCOME HAD BEEN WITHDRAWN BY CIRCULAR NO. 7 DATED 2009. THE CIT (A) UPHELD THE ACTION OF THE AO IN RESPECT OF THE ASSE SSMENT YEAR 2007 - 08 , H OWEVER, DELETED THE DISALLOWANCE IN RESPECT OF THE APPEAL PERTAINING TO A.Y. 2008 - 09 HOLDING THAT THE COMMISSION AGENT DID NOT HAVE ANY BUSINESS CONNECTION IN INDIA. THE ASSESSEE AND THE REVENUE PREFERRED THE APPEAL AGAINST THE FINDIN GS OF THE LD. CIT (A) BEFORE THE TRIBUNAL. THE TRIBUNAL HELD THAT THE PROVISIONS OF SECTION 40(A)(I) WOULD HAVE NO APPLICATION FOR BOTH THE ASSESSMENT YEARS. THE SAID ORDER WAS FURTHER CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT. THE HONBLE HI GH COURT DID NOT ENTERTAIN THE APPEAL OF THE REVENUE. THE OPERATIVE PART OF THE ORDER READS AS UNDER: - THIS CIRCULAR OF 1969 WAS ADMITTEDLY IN FORCE DURING THE TWO ASSESSMENT YEARS. IT WAS ONLY SUBSEQUENTLY I.E. ON 22 ND OCTOBER, 2009 THAT THE EARLIER CIR CULAR OF 1969 AND ITS REITERATION AS FOUND IN CIRCULAR NO. 786 OF 2000 WERE WITHDRAWN. HOWEVER, SUCH SUBSEQUENT WITHDRAWAL OF AN EARLIER CIRCULAR CANNOT HAVE RETROSPECTIVE OPERATION AS HELD BY THIS COURT IN UTI V/S P.K. UNNY AND OTHERS 249 ITR 612. (I) IN VIE W OF THE ABOVE, NOT ONLY THE ENTIRE ISSUE STANDS CONCLUDED IN FAVOUR OF THE RESPONDENT - ASSESSEE IN THE PRE S ENT FACTS BY THE CBDT CIRCULAR NOS. 23 OF 2969 AND 786 OF 2000 WHICH WERE IN FORCE DURING THE SUBJECT ASSESSMENT YEARS BUT ALSO BY THE DECISION OF TH E APEX COURT IN TOSHOKU LTD. (SUPRA) IN FAVOUR OF THE RESPONDENT - ASSESSEE. THUS, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE QUESTION FRAMED FOR OUR CONSIDERATION. ACCORDINGLY, QUESTION (A) NOT ENTERTAINED. 17. IN THE CASE OF HOLCIM SERVICES SOUTH AS IA LTD. VS. DCIT (SUPRA), THE COORDINATE BENCH HAS HELD THAT DISALLOWANCE MADE U/S 40(A)(IA) IN VIEW OF THE 11 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 EXPLANATION INSERTED U/S 9 BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 01.06.1976 IS NOT JUSTIFIED AS THE ASSESSEE COULD NOT HAVE VISUALIZED TO DEDUCT TAX AT SOURCE IN THE ABSENCE OF ANY PROVISION AT THE TIME OF MAKING PAYMENT. THE OPERATIVE PART OF THE ORDER READS AS UNDER: - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER. IT IS AN U NDISPUTE4D FACT THAT THE ASSESSEE HAS MADE PAYMENT TO HGSL WHICH IS A NON - RESIDENT COMPANY BASED AT SWITZERLAND. THE PAYMENT HAS BEEN MADE FOR TRAINING CONDUCTED BY THE HGSL TO ITS DELEGATES OUTSIDE INDIA. IT IS AN ADMITTED FACT HERE THAT NEITHER THE SERVI CE HAVE BEEN RENDERED IN INDIA NOR SUCH SERVICES HAVE BEEN UTILIZED AGGREGATING TO RS. 33,93,493/ - (ON THE BALANCE AMOUNT TDS HAS BEEN DEDUCTED), ON THE GROUND THAT, SUCH PAYMENT RELATE TO SERVICES RENDERED OUTSIDE INDIA. THE REVENUES CASE IS THAT, IN VIE W OF THE EXPLANATION BROUGHT IN THE STATUTE WITH RETROSPECTIVE EFFECT FORM 1 ST JUNE, 1976 AND SUCH AN EXPLANATION IS CLARIFICATORY IN NATURE WHICH NOW PROVIDES THAT THE INCOME OF A NON - RESIDENT SHALL BE DEEMED TO ACCRUE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB - SECTION (1) OF SECTION 9 AND SHALL BE INCLUDED TO THE TOTAL INCOME OF THE NON - RESIDENT, WHETHER OR NOT THE NOT THE NON - RESIDENT HAS RESIDENT (SIC) OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR A NON - RESIDENT HAS RENDE RED SERVICES IN INDIA. THOUGH, SUCH AN AMENDMENT HAS BEEN BROUGHT IN THE STATUTE WITH RETROSPECTIVE EFFECT BUT A THE TIME OF MAKING THE PAYMENT THERE WAS NO SUCH PROVISION UNDER THE ACT AND IN FACT, THE LAW OF THE LAND AS LAID DOWN BY THE HONBLE SUPREME COURT WAS THAT, IF THE SERVICES HAS NOT BEEN RENDERED IN INDIA AND SUCH SERVICES ARE NOT UTILIZED IN INDIA THEN THERE IS NO LIABILITY FOR DEDUCTING TDS. THE AMENDMENT HAS BEEN BROUGHT SPECIFICALLY TO NEGATE THE DECISION OF HONBLE SUPREME COURT. AN ASSESSE E WHO HAS TO MAKE THE PAYMENT CANNOT VISUALIZE OR APPREHEND THAT IN FUTURE A RETROSPECTIVE AMENDMENT WOULD BE BROUGHT WHEREBY IT WOULD REQUIRE WITHHOLDING OF TAX. EVEN IF THE PURPORTED AMENDMENT HAS BEEN BROUGHT WITH THE INTENTION TO CLARIFY THE PROVISION BUT THERE WAS NO SUCH JUDICIAL INTERPRETATION THAT PAYMENTS MADE TO NON - RESIDENTS FOR 12 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 RENDERING OF SERVICES IN INDIA IS TAXABLE IN INDIA IN ABSENCE OF ANY BUSINESS CONNECTION IN INDIA OR PE IN INDIA AND IN THE ABSENCE OF ANY CLEAR - CUT LAW, ASSESSEE CANNOT BEHELD TO BE LIABLE TO DEDUCT TDS. IT IS A TRITE LEGAL MAXIM. LEX NON COGIT AD IMPOSSIBLIA WHICH MEANS THAT THE LAW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS IMPOSSIBLE TO PERFORM. THUS, WE HOLD THAT, AT THE TIME OF MAKING THE PAYMENT, AS SESSEE COULD NOT HAVE VISUALIZE TO DEDUCT TDS WHEN THERE WAS NO PROVISION UNDER THE ACT AND IN FACT, THERE WAS A ALREADY PREVAILING LAW LAID DOWN BY THE HONBLE SUPREME COURT THAT IN SUCH A CASE, NO TDS WAS TO BE DEDUCTED, THE OBVIOUS CONCLUSION IS THAT O N SUCH PAYMENT NO DISALLOWANCE UNDER SECTION 40(A)(I) CAN BE MADE. IF THE VIEW AND CONTENTION RAISED BY THE REVENUE IS TO BE ACCEPTED THAT SUCH A LAW FIXING THE LIABILITY ON THE ASSESSEE IS TO BE RECKONED FROM RETROSPECTIVE DATE, THEN IT WILL CAUSE NOT ONL Y GREAT HARDSHIP AND INJUSTICE BUT ALSO PREJUDICE TO THE ASSESSEE. ACCORDINGLY, WE HOLD THAT, DISALLOWANCE UNDER SECTION 40(A)(I) ON ACCOUNT OF ANY RETROSPECTIVE AMENDMENT IS WHOLLY VITIATED AND CANNOT BE SUSTAINED. ACCORDINGLY, GROUND RAISED BY THE ASSES SEE IS ALLOWED. 18. THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. FAIZAN SHOES PVT. LTD. (SUPRA) HAS HELD THAT COMMISSION PAID BY THE ASSESSEE TO NON - RESIDENT AGENT FOR PROCURING ORDERS FROM OVERSEAS BUYERS IS COMMISSION SIMPLICITER OR THE SAM E CAN BE TREATED AS A SERVICE FOR COMPLETION OF EXPORT COMMITMENT BUT CANNOT BE TREATED AS TECHNICAL SERVICES. THEREFORE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. 19. IN OUR CONSIDERED VIEW, THE FINDINGS OF THE HONBLE HIGH COURTS AND THE C OORDINATE BENCH ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE. T HE AMOUNT WAS PAID TOWARDS REFERRAL FEES TO NKF FOR BUSINESS REFERRED BY THEM THEREFORE IN THE LIGHT OF THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE. SO FAR AS THE APPLICABILITY OF THE CIRCULAR NO 786 OF 2000 IS CONCERNED THE SAME WAS APPLICABLE IN CASE OF THE ASSESSEE AS IT WAS WITHDRAWN ON 22.10.2009. AS PER THE ORDER OF THE HONBLE BOMBAY HIGH 13 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 COURT RENDERED IN THE CASE OF UTI VS. UNN Y AND OTHERS 249 ITR 612 , SUBSEQUENT WITHDRAWAL OF AN EARLIER CIRCULAR CANNOT HAVE RETROSPECTIVE OPERATION . SO FAR AS THE RETROSPECTIVE EFFECT OF THE EXPLANATION TO SECTION 9 IS CONCERNED, THE COORDINATE BENCH HAS HELD THAT DISALLOWANCE ON THE BASIS OF EXP LANATION TO SECTION 9 OF THE ACT INSERTED BY FINANCE BILL 2010 WITH RETROSPECTIVE EFFECT FROM 01.06.1976 WAS BAD IN LAW AS THE ASSESSEE COULD NOT HAVE VISUALIZED TO DEDUCT THE TAX IN THE ABSENCE OF ANY SUCH PROVISION AT THE TIME OF MAKING PAYMENT. HENCE, I N THE LIGHT OF THE JUDGMENTS OF THE HONBLE HIGH COURTS AND THE COORDINATE BENCH OF THE TRIBUNAL DISCUSSED ABOVE, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE AND FURTHER DIRECT THE AO TO DELETE THE ADDITION. 20. GROUND NO 11 NOT PRESSED HENCE DISMISSED AS NOT PRESSED. ITA NO. 3256/MUM /2013 (ASSE SSMENT Y EAR: 2009 - 2010 ) THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL AGAINST THE IMPUGNED ORDER PASSED BY THE LD. CIT (A): - 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 43B FOR THE UNPAID LIABILITY OF SERVICE TAX IGNORING THE FACT THE AO HAD CORR ECTLY MADE THE DISALLOWANCE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN COMING TO A CONCLUSION THAT PROVISIONS OF SECTION 43B DO NOT COME INTO PLAY AS FAR AS ADDITIONS UNDER SECTION 145 ARE CONCERNED, OVERLOOKIN G THE FACT THAT THE AO HAD CORRECTLY DISALLOWED THE SUM AS IT REPRESENTS UNPAID LIABILITY WHICH CAN BE CLAIMED ON ACTUAL PAYMENT. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE H BENCH OF THE ITAT 14 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 RENDERED IN THE ASSESSEES OWN CASE FOR THE A.Y. 2011 - 12. SINCE, THE TRIBUNAL HAS CONFIRMED THE ORDER PASSED BY THE LD. CIT (A), THERE IS NO MERIT IN THE APPEAL OF THE REVENUE . 3. ON THE OTHER HAND, THE LD. DR DID NOT CONTROVERT THE FACT THAT THE TRIBUNAL HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSES O W N CASE. HOWEVER, THE LD. DR SUPPORTED THE ASSESSMENT ORDER. 4. WE HAVE HEARD THE RIVAL SUBMISSION AND ALSO PERUSED THE MATERIAL ON RECOR D INCLUDING THE CASE RELIED UPON BY THE ASSESSEE. THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE ITA NO. 5335/MUM/2015, A.Y. 2010 - 11 HOLDING AS UNDER: - 4. AT THE TIME OF HEARING, THE LD. REPRE SENTATIVE FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAS COME UP BEFORE THE TRIBUNAL FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 VIDE ITA NOS. 2021/MUM/2011 AND 6286/MUM/2011 RESPECTIVELY AND VIDE ORDER DATED 10/07/2013, TRIBUNAL HAS DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE. THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS ALSO SUBMITTED THAT THE ORDER OF THE TRIBUNAL HAS ALSO AFFIRMED BY THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO. 247 & 255 OF 2014 VIDE ORDER DATED 16 TH AUGUST, 2016. THEREFORE, H E PLEADED THAT FOR THIS YEAR ALSO THE ISSUE MAY BE DECIDED IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT CONTROVERT THE SUBMISSIONS OF THE ASSESSEE, HOWEVER, SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 6. WE HA VE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL, CITED ABOVE, IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 VIDE ORDER DATE D 10/07/2013 (SUPRA) AND THE SAME HAS BEEN AFFIRMED BY THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 16 TH AUGUST, 2016 (SUPRA). IN VIEW OF THE ABOVE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE CIT (A) AND THE SAME IS HEREBY AFFIRMED. WE O RDER ACCORDINGLY. 15 ITA NO S . 2410 & 3 256/MUM/2013 ASSESSMENT YEAR: 2009 - 2010 4. SINCE, THE COORDINATE BENCH HAS UPHELD THE FINDINGS OF THE LD. CIT (A) IN ASSESSEES OWN CASE FOR THE A.Y. 2010 - 11 AND SINCE THERE IS NO MATERIAL CHANGE IN THE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. CIT (A). HENCE , RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH , WE UPHOLD THE FINDINGS OF THE LD. CIT (A) AND DISMISSED THE APPEAL FILED BY THE REVENUE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE REVE NUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH . MARCH, 2019 . SD/ - SD/ - ( G.S. PANNU ) ( RAM LAL NEGI ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED: 18 / 03/2019 ALINDRA PS / COPY OF THE ORDER FORWARDED T O : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI