Madalbal Goa Exports Pvt. Ltd, Miramar V. The Assistant Commissioner of Income Tax, Circle -1(1), Panaji

ITA 363/PAN/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2669 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIJULA UNIYAL
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; TDS
• Section: 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 363/PAN/2018 Assessment Year: 2007-08 Madalbal Goa Exports Pvt. Ltd., GI, Sri Chinmoy Apts, Lane 1, ST. Mary’s Colony, Miramar - Goa. [PAN: AADCM 8789Q] Vs. The Asstt. Commissioner of Income Tax, Circle 1(1) Panaji Goa (Appellant) (Respondent) Appellant by : Sh. Sandip Bhandare, CA Respondent by: Smt. Rijula Uniyal, Sr. DR Date of Hearing: 05.04.2022 Date of Pronouncement: 27.06.2022 ORDER Per Anikesh Banerjee, JM: The instant appeal was directed against the order of the learned Commissioner of Income Tax (Appeal) – 2, Panaji {in brevity CIT(A)} bearing IT No-437/CIT(A)-2/PNJ/2017–18, order dated 21.06.2018, passed under section 250(6) of the Income Tax Act, 1961 (in brevity the Act) for assessment year 2007– 08. Instant appeal was generated from the order of the learned Assistant ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT 2 Commissioner of Income Tax, Circle 1(1), Panaji order passed under section 143(3) r.w.s. 147 of the Act, date of order 26/02/2013. 2. Brief facts of the case are that assessee paid commission on sales to the foreign party, Wing Shing International Trading Co Ltd, Hong Kong amount to Rs.9,82,962/–, for which the foreign party had fully done the work abroad and it had no permanent establishment in India. The learned AO disallowed the expenditure incurred on commission to a foreign party by invoking the provision of section 40(a)(ia) of the Act. According to the learned AO, the appellant made payments of commission to non-resident without deduction of tax at source as per provisions of section 195 of the Act. The payment was made to a single party, so the addition was made for violation of section 195 r.w.s section 40(a) (ia) of the Act. As per the revenue the assessee violated the article 12 of the DTAA. That fees for technical/consultancy services arising in a contracting states and paid a resident of other contracting states may be taxed in that other state. It further states that however, such royalties and technical/consultancy fees may also be taxed in the contracting states in which they arise and according to the laws of the state. As per the law of our state the professional and consultancy services even though rendered outside India deemed to accrue or arise in India irrespective of the fact whether the party who render services is having permanent establishment in India or not. The retrospective amendment made by the finance act 2010 makes this position very ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT 3 clear. Accordingly, the revenue authorities offered the addition of commission amount to rupees 982962/– for violation of section 40(a)(ia) read with Section 195 of the Act. Aggrieved assessee filed an appeal before us for further adjudication after rejection of the appeal by the CIT(A). 3. During the hearing the learned Counsel of the assessee filed paper book which is kept in the record. Counsel the assessee argued that the payment was made in foreign party which had no establishment in India and not even visited India during execution of work. The commission was paid on sale. This is not technical service or any royalty. This amount was not prefixed before execution of the contract. Accordingly, the assessee filed the confirmation and invoices which is in paper book from page number 1 to 10. The learned counsel referred two judgments. Principal Commissioner of Income Tax-5 & Others versus Puma Sports India Private Limited, (2021) Tax Corp. (DT), 8455 (Karnataka) & DCIT-8 (2)(1), Mumbai versus Shamrock Pharmachemi Private Limited, (2020) Tax Corp (AT), 86705 (ITAT-Mumbai). As per the learned Counsel this particular payment made to foreign party was not attracted section 195 for deduction of TDS. So, the violation of section 40(a)(ia) of the Act is not for the assessee. 4. The learned DR argued and relied on the order of the learned CIT(A). ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT 4 5. We heard rival submissions and relied on the documents available in the record. The section 40(a)(ia)will be applicable if the liability is raised in India for deduction of tax under section 195. Moreover, where a non-resident has no permanent establishment in India, there can be no liability either under domestic law or under Double Taxation Avoidance Agreement (in brevity DTAA). In any case, even if a non-resident Indian did have a permanent establishment, but income was on without availing of such permanent establishment, the income for services rendered abroad could not have been liable for tax deduction at source. Income by way of fees or technical services payable by a person, who is resident, is taxable income except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India u/s 9(1)(vii)(b) of the Act. In view of explanation (2) to section 9(1)(i), technical services mean any consideration, including lump-sum consideration, for rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personal, but does not include consideration for any commission related to sale. Related commission there is no managerial, technical or consultancy service. In GE India technology Centre Private Limited Supreme Court clearly held that no tax is deductible under section 195 of the Act on commission payments and consequently the expenditure on export commission payable to non-resident for ITA No. 363/PAN/2018 Madalbal Goa Exports Pvt. Ltd. v. Asstt. CIT 5 services rendered outside India becomes a liable expenditure. So, this particular commission paid to foreign party is not attributable to tax in India and no deduction is required under section 195. Accordingly, the expenses dis-allowed under section 40(a)(ia)of the Act is liable to be quashed. 6. In the result, the appeal of the assessee is allowed Order pronounced in the open court on 27.06.2022 Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member *GP/Sr. PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(A), (4) The CIT concerned (5) The Sr. DR, I.T.A.T. (6) The Guard File True Copy By Order Sr. Private Secretary Income Tax Appellate Tribunal