ACIT, C-4(1), Chandigarh V. M/s Winsome Yarns Ltd., Chandigarh

ITA 374/CHANDI/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6082 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 27-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: TDS
• Section: 40(a)(ia); 195

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH . . , , BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJAY GARG, JUDICIAL MEMBER ./ ITA NO. 374/CHD/2018 / ASSESSMENT YEAR : 2014-15 THE ACIT, CIRCLE 4(1), CHANDIGARH VS. ! M/S WINSOME YARNS LTD., SCO 191-192,SECTOR 34-A, CHANDIGARH ' # ./ PAN NO:AAACW1911H '$/ APPELLANT &' '$ / RESPONDENT ()*+ / ASSESSEE BY : SH. TEJ MOHAN SINGH, ADVOCATE *+ / REVENUE BY : SHRI G.S. PHANI KISHORE, CIT DR , -*) .# / DATE OF HEARING : 31.07.2019 /0 *) .# / DATE OF PRONOUNCEMENT : 02.08.2019 / ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 23.01.2018 OF THE COMMISSIONER OF INCOM E TAX (APPEALS)-2, CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS IN THIS APPEAL:- (I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS NOT ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND DELETING THE ADDITION OF RS. 99,59,669/- DESPITE TH E FACT THAT THE ASSESSEE FAILED TO DEDUCT TAXES AT SOURCE U/S 195 O F THE ACT ON ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 2 THE PAYMENTS MADE TO NON-RESIDENTS WITHOUT APPRECIA TING THE FACT THAT INCOME ACCRUED IN INDIA AND THE ASSESSEE WAS UNDER STATUTORY OBLIGATION TO DEDUCT TAX AT SOURCE.? (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) IS CORRECT IN DELETING THE ADDITIONS MADE ON ACCOUNT OF EMPLOYEE SHARE PAID AFTER DUE DATE AS PER THE RELEV ANT ACT U/S 36(1 )(VA) WHEREIN THE CBDT HAS GIVEN CLARIFICATION REGARDING APPLICABILITY OF SECTION 43-B THAT THIS CIRCULAR DO ES NOT APPLY TO CLAIM OF DEDUCTIONS RELATING TO EMPLOYEE'S CONTRIBU TION TO WELFARE FUNDS WHICH ARE GOVERNED BY SECTION 36(L)(V A) OF THE I.T.ACT.? (III) IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET A SIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. (IV) THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROU NDS OF APPEAL BEFORE THE APPEAL IS HEARD OR IS DISPOSED OF F. 3. GROUND NO.1 : VIDE GROUND NO.1, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER U/S 40(A)(I) OF THE INCOME TAX ACT, 1961 (I N SHORT 'THE ACT') ON ACCOUNT OF NON-DEDUCTION OF TDS ON COMMISSION PAID TO NON-RESIDENTS AS PER THE PROVISIONS OF SECTION 195 OF THE ACT. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PAYMENTS WERE MADE OUTSIDE INDIA TO THE NON-RESIDEN TS AND, HENCE, THE PROVISIONS OF SECTION 195 OF THE INCOME-TAX ACT WE RE NOT ATTRACTED TO THE AFORESAID TRANSACTIONS. HE HAS FURTHER SUBMITTE D THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMEN T YEARS 2011-12 TO ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 3 ASSESSMENT YEAR 2013-14 VIDE COMMON ORDER DATED 18 .5.2018 PASSED IN ITA NOS. 932, 933, 804 & 1321/CHD/2017. THE RELEV ANT PART OF THE ORDER OF THE TRIBUNAL, FOR THE SAKE OF READY REFERE NCE, IS REPRODUCED AS UNDER:- 8. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND FIND THAT (A) THE AGENTS ABROAD WERE NON-RESIDENTS OPERATING OUTSIDE INDIA; (B) THE COMMISSION PAID RELATES TO SERVICES PROVIDED OUTSIDE INDIA; (C) THE AGENTS DID NOT HAVE ANY PERM ANENT ESTABLISHMENT IN INDIA; AND (D) THE AMOUNTS WERE RE MITTED DIRECTLY OUTSIDE INDIA. RELIANCE IS ALSO PLACED ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN CASE OF FARIDA LEAT HER COMPANY IN APPEAL NO. 484 OF 2015 DT. 02/01/2016 WH EREIN IT WAS HELD THAT MERELY BECAUSE A PERSON HAS NOT DEDUC TED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRE D THAT THE PERSON MAKING THE REMITTANCE, HAS COMMITTED A DEFAU LT IN DISCHARGING HIS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY WHEN THE RECIP IENT HAS A TAX LIABILITY IN INDIA. THE TAX WITHHOLDING LIABILI TY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE R ECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DO NO T HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABILITY OF THE PAYER T O DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPI ENT / FOREIGN AGENT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT ESTABLISHED. THEREFORE, THE VI CARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. 9. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THAT THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROA D AND FOLLOWING UP PAYMENTS WITH BUYERS. NO OTHER SERVICE S WERE RENDERED OTHER THAN THE ABOVE. SOURCING ORDERS ABRO AD, FOR WHICH PAYMENTS HAVE BEEN MADE DIRECTLY TO THE NON-R ESIDENTS ABROAD, DOES NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOES NOT REQUIRE ANY CON TRIBUTION OF ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 4 TECHNICAL KNOWLEDGE, EXPERIENCE, EXPERTISE, SKILL O R TECHNICAL KNOW-HOW OF THE PROCESSES INVOLVED OR CONSISTS IN T HE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DES IGN. THE PARTIES MERELY SOURCE THE PROSPECTIVE BUYERS FOR EF FECTING SALES BY THE ASSESSEE. 10. WHEN THE TRANSACTION DOES NOT ATTRACT THE PROVI SIONS OF SECTION 9 OF THE ACT, THE REVENUE HAS NO CASE AND T HE APPEAL IS LIABLE TO BE DISMISSED. 11. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED. 12. HOWEVER BEFORE PARTING WE FIND THAT COMMISSION ON SALES HAS BEEN PAID TO ONE M/S EXCEL ENTERPRISES, LUDHIAN A AT S.NO. 6 OF THE TABLE (A.Y. 2011-12), SHROFF TEXTILE EXPORT AT S.NO. 40, TAJ CLUB MARKETING PVT. LTD. AT S.NO. 45, VIJAY KUM AR KAPOOR AT S.NO. 49 AND VINOD KUMAR KIRORI AT S.NO. 50 (A.Y . 2012-13) ARE OPERATING FROM INDIA. HENCE, THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(IA) TO THAT E XTENT STANDS CONFIRMED. 5. NO DISTINGUISHING FACTS HAVE BEEN BROUGHT BEFORE US BY THE LD. DR. THE TRIBUNAL IN THE AFORESAID ORDER HAS OBSERV ED THAT THE SERVICES WERE RENDERED BY THE NON-RESIDENTS OUT OF INDIA AND THE PAYMENT WERE ALSO RECEIVED BY THEM OUT OF INDIA AND, HENCE, THEI R INCOME WAS NOT ASSESSABLE IN INDIA UNDER THE PROVISIONS OF THE INC OME TAX ACT. HOWEVER, THE TRIBUNAL HAS ALSO OBSERVED THAT THE C OMMISSION TO CERTAIN PARTIES WHO WERE OPERATING FROM INDIA WAS TAXABLE AND, HENCE, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WERE ATT RACTED IN THOSE CASES AS MENTIONED IN PARA 12 OF THE ORDER DATED 18.5.201 8 OF THE TRIBUNAL (SUPRA). FOLLOWING THE SAME LINES AND IN THE ABSE NCE OF ANY ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 5 DISTINGUISHING FACTS, WE HOLD THAT NO DISALLOWANCE IS ATTRACTED U/S 40(A)(I) OF THE ACT IN RESPECT OF PAYMENTS TO THE P ARTIES WHO OPERATED OUT OF INDIA AND RECEIVED COMMISSION / PAYMENT OUT OF INDIA. HOWEVER, THE COMMISSION PAID TO THE PARTIES WHO ARE OPERATIN G FROM INDIA WOULD ATTRACT THE DISALLOWANCE U/S 40 (A)(IA) OF THE ACT. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO F OLLOW THE ORDER OF THE TRIBUNAL DATED 18.5.2018 (SUPRA) FOR THE EAR LIER ASSESSMENT YEARS AND COMPUTE THE DISALLOWANCE ACCORDINGLY. 6. GROUND NO. 2: VIDE GROUND NO.2, THE REVENUE HAS AGITATED THE ACTION OF THE CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPOSITS OF EMPLOYEES SHAR E AFTER DUE DATE UNDER THE PROVISIONS OF SECTION 36(1)(VA) OF THE AC T. THE LD. COUNSEL HAS INVITED OUR ATTENTION TO PARA 6.3 OF THE IMPUGN ED ORDER OF THE CIT(A) TO SUBMIT THAT THE LD. CIT(A) HAS RELIED U PON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS MARK AUTO INDUSTRIES LTD. 358 ITR 43 (P&H) AND FOLLOWING THE SAID DECISION, HAS OBSERVED THAT SINCE THE ASSESSEE HAD DEPOSITED THE CONTRIBUTION TO THE ESI / PF BEFORE THE DUE DATE OF FILING OF RETURN, H ENCE, THE ISSUE WAS COVERED BY THE PROPOSITION OF LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE. 7. THE LD. DR HAS ALSO FAIRLY ADMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH CO URT IN CIT VS MARK ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 6 AUTO INDUSTRIES LTD. (SUPRA) AS WELL AS THE RATIO LAID DOWN BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MAGUS CUSTOMERS DIALOG (P) LTD. [2015] 371 ITR 242 (KARNATAKA). WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE CIT(A) ON THIS ISSUE ALSO AND THE SAME IS ACCORDINGLY DIS MISSED. 8. GROUND NOS. 3 & 4 : THESE GROUNDS ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02.08.2019. SD/- SD/- ( . . / N.K. SAINI) ( ! / SANJAY GARG) '#$ / VICE PRESIDENT %& / JUDICIAL MEMBER DATED : 02.08. 2019 .. 2*&)3454) / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. &' '$ / THE RESPONDENT 3. , 6) / CIT 4. , 6) ( )/ THE CIT(A) 5. 47 &)8 , . 8 , 9:;< / DR, ITAT, CHANDIGARH 6. ;= - / GUARD FILE 2 , / BY ORDER, > / ASSISTANT REGISTRAR ITA NO. 374-C-2018 M/S WINSOME YARNS LIMITED, CHANDIGARH 7