ACIT, New Delhi V. M/s Maharani Enterprises, Delhi

ITA 3575/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4235 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR MAHAR
• Keywords: Services rendered outside India; Non-deduction of tax
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI R.S.SYAL, HONBLE VICE PRESIDENT AND SHRI LALIET KUMAR, ACCOUNTANT MEMBER ITA NO.3575/DEL./2015 (ASSESSMENT YEAR : 2012-13) ACIT, MAHARANI ENTERPRISES CIRCLE -46 (1), VS. 20-A, GADODIA MARKET, KHARI BAOLI DELHI NEW DELHI. (PAN : AAMFM4846Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SURESH GUPTA, CA. REVENUE BY : SHRI MANOJ KUMAR MAHAR, SR. DR DATE OF HEARING : 09.10.2018 DATE OF ORDER : 09.10.2018 O R D E R PER LALIET KUMAR, ACCOUNTANT MEMBER : 1. THE PRESENT APPEAL IS FILED BY THE REVENUE ON TH E FOLLOWING GROUNDS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 28,09,361/- MADE BY AO ON ACCOUNT OF NON-DEDUCTION OF TDS U/S 4 0(A)(IA) OF THE I.T.ACT, ON COMMISSION. 2. DURING THE ASSESSMENT YEAR UNDER CONSIDERA TION, THE ASSESSEE IS ENGAGED IN AS EXPORTER AND IMPORTER OF SANITARY WAR ES & TILES AND ALSO WHOLESALE TRADING OF DRY FRUITS AND KIRANA ITEMS. T HE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND SUBSEQUENTLY NOTICE U/ S 142(1) OF THE ACT WAS ISSUED ON 10.12.2013. IT WAS NOTICED BY THE ASS ESSING OFFICER THAT ITA NO. 3575/DEL./2015 2 DURING THE ASSESSMENT YEAR THE ASSESSEE HAD PAID AN AMOUNT OF RS. 12,809,361/- TOWARDS THE COMMISSION TO SHRI SANJAY MEHATA WHO WAS STAYING IN DUBAI. THE ASSESSING OFFICER , AFTER CON SIDERING THE REPLY OF THE ASSESSEE, HAD DISALLOWED THE COMMISSION PAID BY THE ASSESSEE SHRI SANJAY MEHATA. ON THE PRETEXT THAT TDS WAS NOT DEDU CTED BY THE ASSESSED, AT THE TUNE OF PAYMENT. 3. BEING AGGRIEVED BY THE ORDER PASSED BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED THE APPEAL BEFORE THE LD. CI T(A). THE CIT(A) VIDE THE IMPUGNED ORDER ALLOWED THE CLAIM OF THE AS SESSEE AND RECORDED THE FINDING AS UNDER : THUS HAVING REGARD TO THE ABOVE FACTS AND CIRCUMST ANCES OF THE CASE AND ON AN ANALYSIS AND COMPREHENSIVE CO NSIDERATION OF THE ENTIRE FACTUAL MATRIX OBTAINING IN THIS CASE , I AM OF THE CONSIDERED VIEW THAT NEITHER SECTION 5 NOR SECTION 9 OF THE ACT PROVIDE ANY SCOPE FOR TAXING ANY SUCH PAYMENTS WHOS E GENESIS WAS OUTSIDE INDIA. MERELY BY VIRTUE OF CONNECTION W ITH THE APPELLANT IN INDIA THE COMMISSION AGENT SH. SANJAY MEHTA DID NOT BECOME LIABLE TO INCOME TAX IN INDIA AND THEREB Y U/S 40(A)(IA) OF THE ACT AS IS CLEAR FROM THE REASONS INDICATED IN THE FOREGOING PARAGRAPHS. FOR ALL THE AFORESAID REASONS DISCUSSED HEREINABOV E, THE GROUND OF APPEAL NO. 2 IS ALLOWED AND THE ADDITION OF RS. 1,28,09,361/- MADE BY THE AO IS DELETED. 4. FEELING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US. ON THE ABOVE MENTIONED GRO UNDS. 5. AT THE OUTSET, THE LD. AR FOR THE ASSESSEE HAS D RAWN OUR ATTENTION TO THE ORDER PASSED BY THE TRIBUNAL IN TH E CASE IN ITA NO. 5806/DEL/2014 FOR ASSESSMENT YEAR 2011-12 WHEREIN THE TRIBUNAL IN IDENTICAL FACTS HAVE DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE AND DISMISS THE APPEAL OF THE REVENUE. ITA NO. 3575/DEL./2015 3 6. LD. DR, PER CONTRA, RELIED UPON THE DECISION PAS SED BY THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIAL ON RECORD. AS FACTS IN THE PRESENT YEA R ARE SIMILAR TO THE FACTS IN EARLIER YEAR DECIDED BY THE CO-ORDINATE BE NCH IN ITA NO. 5806/D/2014 WHEREBY THE TRIBUNAL IN PARAGRAPH 8 HA S RECORDED AS UNDER :- 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE CIT(A) HA S GIVEN A DETAILED FINDING AS TO WHY THE AMOUNT OF RS. 1,19,5 1,774/- HAS TO BE DELETED. TO ARRIVE AT THIS FINDING, THE CIT(A ) HAS TAKEN A COGNIZANCE OF RBIS GUIDELINES AS WELL AS CBDT CIRC ULAR. AT THE TIME OF HEARING, IT WAS POINTED OUT BY LD. AR T HAT THE SAID CIRCULAR WAS WITHDRAWN BY THE DEPARTMENT. ALL THESE ASPECTS HAVE BEEN TAKEN INTO CONSIDERATION BY THE CIT(A). B ESIDES THIS, THE ISSUE IS ALSO DEALT BY US IN CASE OF DIVY A CREATION WHEREIN WE HAVE HELD AS UNDER:- 19. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND PAPER BOOK FILED ON BEHALF OF THE ASSESS EE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. WE FIND THE ASSESSING OFFICER MADE ADDITION OF RS. 62, 19,609/- U/S 40(A)(I) ON THE GROUND THAT ASSESSEE HAS NOT DEDUCT ED TAX FROM THE FOREIGN AGENCY COMMISSION PAID AS PER THE PROVI SIONS OF SECTION 195 OF THE I. T. ACT. WHILE DOING SO, THE A SSESSING OFFICER RELIED ON THE DECISION OF THE AAR IN THE CA SE OF SKF BOILERS AND DRIERS PVT. LTD. (SUPRA) AND THE DECISI ON IN THE CASE OF RAJIV MALHOTRA (SUPRA). WE FIND THE ID. CIT (A) WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER HELD THAT INCOME ARISING TO THE AGENT ON ACCOUNT OF EXPORT COMMISSIO N VERY MUCH FALLS WITHIN THE AMBIT OF PROVISIONS CONTAINED IN SECTION 5(2)(B) OF THE I.T. ACT AS THE INCOME HAS ACCRUED I N INDIA WHEN THE RIGHT TO RECEIVE THE SAME CAME INTO EXISTE NCE. ACCORDING TO HIM ALTHOUGH THE NON- RESIDENT AGENT H AS ITA NO. 3575/DEL./2015 4 RENDERED SERVICES AND PROCURED ORDERS ABROAD BUT TH E RIGHT TO RECEIVE THE COMMISSION CERTAINLY ARISE IN INDIA WHE N THE ORDER GETS EXECUTED BY THE ASSESSEE. ACCORDING TO H IM, THE MERE FACT THAT THE AGENT IS TO RENDER SERVICES ITA NO. 5603/DEL/2014 ABROAD AND THE COMMISSION IS TO BE RE MITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING THE INCOME SINCE INCOME IS FROM A SOURC E IN INDIA. 20. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF WELS PUN CORPORATION LTD. (SUPRA). THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THE PAYMENTS MADE BY THE ASSESSEE FOR SERVICES RENDERED BY NON-RESIDENT AGENTS COULD NOT BE HELD T O BE FEES FOR PAYMENT FOR TECHNICAL SERVICES. THESE PAYMENTS WERE IN NATURE OF COMMISSION EARNED FROM SERVICES RENDERED OUTSIDE INDIA WHICH HAD NO TAX IMPLICATIONS IN INDIA. THE T RIBUNAL WHILE DECIDING THE ISSUE HAS ALSO CONSIDERED THE TW O DECISIONS OF THE AAR WHICH HAS BEEN RELIED ON BY THE ASSESSIN G OFFICER AS WELL AS THE CIT(A). 21. WE FIND THE ITON'BLE ALLAHABAD HIGH COURT IN THE C ASE OF MODEL EXIMS (SUPRA) HAS HELD THAT FAILURE TO DEDUCT TAX AT SOURCE FROM PAYMENT TO NONRESIDENT AGENTS, WHO HAS THEIR OWN OFFICES IN FOREIGN COUNTRY, CANNOT BE DISALLOWE D, SINCE THE AGREEMENT FOR PROCURING ORDERS DID NOT INVOLVE ANY MANAGERIAL SERVICES. IT WAS HELD THAT THE EXPLANATI ON TO SECTION 9(2) IS NOT APPLICABLE. IT WAS FURTHER HELD THAT THE SITUATION CONTEMPLATED OR CLARIFIED IN THE EXPLANAT ION ADDED BY THE FINANCE ACT, 2010 WAS NOT APPLICABLE TO THE CASE OF THE ASSESSEE AS THE AGENTS APPOINTED BY THE ASSESSEE HA D THEIR OFFICES SITUATED IN THE FOREIGN COUNTRY AND THAT TH EY DID NOT PROVIDE ANY MANAGERIAL SERVICES TO THE ASSESSEE. SE CTION 9(L)(VII) DEAL WITH TECHNICAL SERVICES AND HAS TO B E READ IN THAT ITA NO.5603/DEL/2014 CONTEXT. THE AGREEMENT OF PROC URING ORDERS WOULD NOT INVOLVE ANY MANAGERIAL SERVICES. T HE AGREEMENT DID NOT SHOW THE APPLICABILITY OR REQUIRE MENT OF ANY TECHNICAL EXPERTISE AS FUNCTIONING AS SELLING A GENT, ITA NO. 3575/DEL./2015 5 DESIGNER OR ANY OTHER TECHNICAL SERVICES. 22. WE FIND THE HON'BLE SUPREME COURT IN THE CASE OF T OSHOKU LTD. (SUPRA) HAS OBSERVED AS UNDER :- 'DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 1962-63, B, A DEALER IN TOBACCO IN INDIA, PURCHASED TOBACCO AND EXPORTED IT TO JAPAN AND FRANCE THROUGH NON-RES IDENT SALES AGENTS, A JAPANESE COMPANY AND A FRENCH BUSIN ESS HOUSE RESPECTIVELY. UNDER THE TERMS OF THE AGREEMEN T, THE JAPANESE COMPANY, WHICH WAS APPOINTED AS EXCLUSIVE SALES AGENT IN JAPAN FOR TOBACCO EXPORTED BY B, WAS ENTIT LED TO A COMMISSION OF 3 PER CENT, OF THE INVOICE AMOUNT. TH E SALE PRICE RECEIVED ON THE SALE IN JAPAN WAS REMITTED WH OLLY TO B IN INDIA AND B DEBITED HIS COMMISSION ACCOUNT AND C REDITED THE AMOUNT OF COMMISSION PAYABLE TO THE JAPANESE CO MPANY IN HIS ACCOUNT BOOKS AND LATER REMITTED THE AMOUNT TO THE JAPANESE COMPANY. THERE WAS A SIMILAR AGREEMENT WIT H THE FRENCH BUSINESS HOUSE IN RELATION TO THE CORRESPOND ING AREA AND SIMILAR CREDIT AND DEBIT ENTRIES AND SUBSEQUENT REMITTANCE OF THE COMMISSION WERE MADE. THE QUESTIO N WAS WHETHER THE COMMISSION EARNED BY THE NON-RESIDENT S ALES AGENTS COULD BE TAXED IN INDIA, TREATING B AS REPRE SENTATIVE ASSESSEE UNDER S. 161 OF THE L.T. ACT, 1961: HELD, (I) THAT IT COULD NOT BE SAID THAT THE MAKING OF THE ENTRIES IN THE BOOKS OF B AMOUNTED TO RECEIPT, ACTUAL OR CO NSTRUCTIVE, BY THE NON-RESIDENT SALES AGENTS AS THE AMOUNTS SO CREDITED IN THEIR FAVOUR WERE NOT AT THEIR DISPOSAL OR CONTROL; THEY COULD NOT, THEREFORE, BE CHARGED TO TAX ON THE BASIS OF R ECEIPT OF INCOME, ACTUAL OR CONSTRUCTIVE, IN THE TAXABLE TERR ITORIES. (II) THAT'THE NON-RESIDENTS DID NOT CARRY ON ANY BU SINESS OPERATION IN THE TAXABLE TERRITORIES : THEY ACTED A S SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE S ALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO THE REMITTED BY TH E PURCHASERS FROM ABROAD DID NOT AMOUNT TO AN OPERATI ON CARRIED OUT BY THE NON-RESIDENTS IN INDIA AS CONTEM PLATED BY CL. (A) OF THE EXPLANATION TO S. 9(L)(I) OF THE I.T . ACT, 1961. THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RES IDENTS ITA NO. 3575/DEL./2015 6 FOR SERVICES RENDERED OUTSIDE INDIA COULD NOT BE DE EMED TO BE INCOME WHICH HAD EITHER ACCRUED OR ARISEN IN INDIA. A CREDIT BALANCE, WITHOUT MORE, ONLY REPRESENTS A D EBT AND A MERE BOOK ENTRY IN THE DEBTOR'S OWN BOOKS DOES NOT CONSTITUTE PAYMENT WHICH WILL SOURCE A DISCHARGE FROM THE DEBT .' 23. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE MADRAS H IGH COURT IN THE CASE OF KIKANI EXPORTS PVT. LTD. (SUPR A) AND FAIZAN SHOES PVT. LTD. (SUPRA). ITA NO.5603/DEL/201 4 THE HON'BLE DELHI HIGH COURT IN THE CASE OF EON TECHNOL OGY P. LTD. (SUPRA) HAS ALSO TAKEN SIMILAR VIEW WHERE IT H AS BEEN HELD THAT NON-RESIDENT COMMISSION AGENTS BASED OUTS IDE INDIA RENDERING SERVICES OF PROCURING ORDERS CANNOT BE SA ID TO HAVE A BUSINESS CONNECTION IN INDIA AND THE COMMISSION P AYMENTS TO THEM CANNOT BE SAID TO HAVE BEEN EITHER ACCRUED OR ARISEN IN INDIA. IN VIEW OF THE DECISIONS CITED ABOVE (SUP RA), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX UNDER THE PROVISIONS OF SECTION 195 OF T HE I.T. ACT ON ACCOUNT OF FOREIGN AGENCY COMMISSION PAID OUTSID E INDIA FOR PROMOTION OF EXPORT SALES OUTSIDE INDIA. ACCORD INGLY, THE ORDER OF THE CIT(A) IS SET-ASIDE AND THE GROUNDS RA ISED BY THE ASSESSEE ARE ALLOWED. THUS, BOTH THE ISSUES INVOLVED IN APPEAL AND IN CRO SS OBJECTIONS ARE COVERED IN FAVOUR OF THE ASSESSEE. T HEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED AND CROSS- O BJECTION OF THE ASSESSEE IS ALLOWED. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH IN THE CASE OF THE ASSESSEE FOR THE EARLIER YEAR, W E DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON THIS 09 TH OCTOBER, 2018. SD/- SD/- (R.S.SYAL) (LA LIET KUMAR) VICE PRESIDENT ACCOUNTANT MEMBER ITA NO. 3575/DEL./2015 7 D ATED 09/10/ 2018 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI. DATE OF DICTATION 09.10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 09 .10.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 09.10.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 09.10.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS .10.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT .10.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .10.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER