The Income tax Oficer,TDs-1, Ahmedabad V. Asiatic Colour Chem Ltd., Ahmedabad

ITA 3936/AHD/2004

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85681 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 06-02-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 31-12-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Keywords: Permanent establishment
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD , LH LHLH LH BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA NOS. 3934, 3935 & 3936/AHD/2004 (ASSESSMENT YEAR:2001-02, 2002-03 & 2003-04) ITO, TDS-1, AHMEDABAD APPELLANT VS. ASIATIC COLOUR CHEM INDS. LTD. 1503, PHASE-I, GIDC ESTATE, NARODA, AHMADABAD RESPONDENT PAN: AABCA6297R / BY REVENUE :SHRI M. K. SINGH, SR. D.R. / BY ASSESSEE : SHRI TUSHAR HEMANI, A.R. /DATE OF HEARING : 06.02.2015 !' /DATE OF PRONOUNCEMENT : 19.02.2015 I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 2 ORDER PER SHAILENDRA KUMAR YADAV, J.M: ALL THESE APPEALS FILED BY REVENUE ARE PERTAINED TO SAME ASSESSEE FOR A.Y. 2001-02, 2002-03 & 2003-04, ARISI NG OUT FORM THE CONSOLIDATE ORDER OF CIT(A)-X, AHMEDABAD, DATED 05.11.2004 ON SIMILAR GROUNDS. SO, THEY ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENI ENCE. 2. IN ITA NO. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 2 001- 02, 02-03 & 03-04 REVENUE HAS FILED APPEALS ON THE FOLLOWING SAME GROUND: 1. THE LD. CIT (A) HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE IN DELETING THE TDS AMOUNT ALONG WITH INTEREST U/S. 201(1) AND 201(1A) OF THE INCOME-TAX ACT OF RS.56,88,910/-, RS.26,19,492/- AND RS.69,30,792/ - RESPECTIVELY. 2.1 ITO, TDS-1 PASSED THIS ORDER ON 02.06.2004 STAT ING THAT SURVEY U/S. 133 A OF THE ACT WAS CARRIED OUT ON 29. 09.2003 AND STATEMENT OF SHRI NATWARLAL VALJIBHAI PRAJAPATI , ACCOUNTS MANAGER WAS RECORDED. IT WAS NOTED BY SURVEY PARTY THAT IN THEIR BOOKS FOR F.Y. 2001-02 & 2002-03 ASESSEE HAS PAID SALES COMMISSION, BUT NOT DEDUCTED TDS OUT OF THE SAME. COMMISSION TO THE EXTENT OF RS.61,60,703/- WAS PAID TO A NON- RESIDENT IN FOREIGN EXCHANGE ON WHICH TDS WAS NOT D EDUCTED I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 3 STATING THAT COMMISSION HAS BEEN PAID DIRECTLY TO F OREIGN AGENT WHO WAS RENDERING SERVICES FROM FOREIGN COUNTRIES. IN RESPONSE TO SHOW CAUSE NOTICE, IT WAS RESPONDED BY ASSESSEE THAT TDS PROVISIONS WERE NOT APPLICABLE IN THEIR CA SE AS PER CIRCULAR NO. 759 AND CIRCULAR NO.10 OF CBDT. IT WA S ALSO STAND OF ASSESSEE THAT PROVISIONS OF TDS ARE NOT AP PLICABLE TO ASSESSEE. SECTION 195 CLUBBED WITH CIRCULAR NO. 25 DTD. 23.07.69, IT HAS BEEN CLARIFIED THAT WHERE NON-RESI DENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA AND IN SUCH CASE TDS PROVISIONS ARE NOT APPLI CABLE. IN THE INSTANT CASE, THE COMMISSION PAYMENTS WERE REMI TTED DIRECTLY IN THE FOREIGN COUNTRIES. THUS, IT WAS NO T THE COMMISSION RECEIVED BY OR ON BEHALF OF AGENT IN IND IA. ITO HAVING CONSIDERED THE SUBMISSION ON BEHALF OF ASSES SEE LEVIED TDS AMOUNT WITH INTEREST U/S.201(1) AND 201(1A) OF THE ACT. 2.2 MATTER WAS CARRIED BEFORE FIRST APPELLATE AUTHO RITY, WHEREIN VARIOUS SUBMISSIONS RAISED ON BEHALF OF ASS ESSEE AND HAVING CONSIDERED THE SAME, CIT(A) HAS GRANTED RELI EF TO THE ASSESSEE. 2.3 SAME HAS BEEN OPPOSED ON BEHALF OF REVENUE INTE R ALIA SUBMITTED THAT CIT(A) ERRED IN LAW AS WELL AS ON FA CTS OF THE CASE IN DELETING TDS AMOUNT ALONG WITH INTEREST U/S . 201(1) & 201(1A) OF THE INCOME TAX ACT. ON OTHER HAND, LEAR NED AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CI T(A) AND I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 4 SUBMITTED THAT PROVISIONS OF TDS ARE NOT APPLICABLE TO THE ASSESSEE BECAUSE RECIPIENT OF THE TAX I.E. FOREIGN AGENTS IS NOT HAVING ANY OFFICE SET UP OR BRANCH OR ANY BUSINESS ACTIVITY IN INDIA. CIT(A) HAVING CONSIDERED THE SAME HAS RIGHT LY GRANTED RELIEF TO THE ASSESSEE. SAME SHOULD BE UPHELD. 3. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT ASSESSEE IS A MANUFACTURING AN D SELLING COLOUR DYES REGISTERED IN INDIA AS A COMPANY AND SE LLING ITS PRODUCTS IN VARIOUS FOREIGN COUNTRIES THROUGH FOREI GN AGENTS BY PAYING COMMISSION TO THEM. FOREIGN AGENTS ARE NOT HAVING ANY OFFICE SET UP OR BRANCH OR ANY BUSINESS ACTIVITY IN INDIA. THEY WERE PROVIDING SERVICES TO THE INDIAN COMPANIES IN THEIR RESPECTIVE COUNTRIES BY PROCURING ORDERS AND ALSO E NSURING THE SMOOTH TRANSACTION OF SALES BETWEEN ASSESSEE AND PA RTIES IN THEIR COUNTRY. IN CASE OF DISPUTE ALSO THEY HELP T O INDIAN COUNTER PART TO SETTLE THE DISPUTE. ASSESSEE IN TU RN SEEKING PERMISSION FROM RBI WHILE MAKING THE REMITTANCE TO FOREIGN AGENTS THE PAYMENT IN RESPECT OF THEIR SERVICES IN FOREIGN COUNTRY. THE SURVEY PARTY HAS RAISED THE OBJECTION THAT PAYMENT MADE TO SUCH FOREIGN AGENTS FOR RENDERING S ERVICES IN FOREIGN COUNTRIES IS INCOME CHARGEABLE IN INDIA, TH EREFORE SUCH PAYMENTS ARE LIABLE UNDER THE PROVISIONS OF SECTION 195. AFTER ARRIVING AT THIS CONCLUSION, CIT(A) HELD THAT ASSES SEE HAS NOT FAILED TO DEDUCT TAX OUT OF PAYMENT MADE TO FOREIGN AGENTS. IT IS CLEAR THAT ASSESSEE COMPANY IS MAKING COMMISSION PAYMENT I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 5 TO FOREIGN AGENTS IN THEIR RESPECTIVE COUNTRIES THR OUGH INDIAN BANK. INCOME OF NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA PROVIDED INCOME IS RECEIVED OR DEEMED TO HAVE BEEN RECEIVED IN INDIA BY OR ON BEHALF OF SUCH PERSON, INCOME ON WHI CH ACCRUES OR ARISES OR DEEMED TO HAVE ACCRUED OR ARISEN TO HI M IN INDIA. IN THIS CASE, THERE IS AN INCOME ARISING TO A NON-R ESIDENT, I.E. FOREIGN AGENT, BUT SINCE THE SAME IS RECEIVED IN FO REIGN COUNTRY, INCOME HAS ACCRUED OR ARISEN IN FOREIGN COUNTRY TO FOREIGN AGENT, BUT NOT IN INDIA. THUS, SINCE THE INCOME IS NOT ARISEN, AND NOT RECEIVED IN INDIA, BY AN INDIAN, INCOME IS TREATED AS NOT CHARGEABLE TO A PERSON IN INDIA. SUCH INCOME I S GOVERNED BY INCOME TAX RULES AND REGULATIONS OF RESPECTIVE C OUNTRIES. IN CASE OF ASSESSEE, PAYEE IS AN AGENT RESIDING IN FOREIGN COUNTRY NOT HAVING ANY BUSINESS CONNECTION IN INDIA . FOREIGN AGENTS ARE PAID THEIR SALES COMMISSION IN THEIR RES PECTIVE COUNTRIES AND NO SUCH ACTIVITIES ARE CARRIED OUT IN INDIAN TERRITORY. THEY DID NOT HAVE ANY PERMANENT OR NON- PERMANENT ESTABLISHMENT IN INDIA. DECLARATION BY ASSESSEE CO UNTER SIGNED BY THE C. A. AS AN EVIDENCE FILED BY ASSESSE E LIKE DOCUMENTS IN CONNECTION WITH FOREIGN AGENT INDICATI NG THAT WHETHER HE IS EARNING ANY INCOME IN INDIA OR HAVING ANY ESTABLISHMENT IN INDIA. THE CONCERNED PAYMENT MADE BY ASSESSEE WAS DIRECTLY REMITTED ABROAD THROUGH BANKI NG CHANNEL AFTER RELEVANT APPROVAL OF RBI AND ACCEPTED BY FOREIGN AGENTS IN RESPECTIVE COUNTRIES. THEREFORE, AS PER PROVISIONS OF SECTION 9 OF THE INCOME TAX ACT, INCOME HAS NOT ARI SEN OR I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 6 ACCRUED IN INDIA. THE CASE OF ASSESSEE DOES NOT FA LL UNDER THE PROVISIONS OF INCOME CHARGEABLE IN INDIA. THEREFOR E, QUESTION OF SUCH INCOME COVERED BY TDS PROVISIONS DOES NOT A RISE. THE PAYMENT WAS MADE TO FOREIGN AGENT WERE CHARGEABLE I N FOREIGN COUNTRY, BUT NOT IN INDIA. THEREFORE, PROVISIONS O F SECTION 195 ARE APPLICABLE ONLY WHEN INCOME IS CHARGEABLE IN IN DIA SINCE INCOME HAS ARISEN OR ACCRUED TO SUCH AGENT IN HIS R ESPECTIVE COUNTRY, THE QUESTION OF DEDUCTING TAX AT SOURCE DO ES NOT ARISE. IN SUM AND SUBSTANCE, COMMISSION PAYMENT MADE BY AS SESSEE TO FOREIGN AGENT IS NOT AN INCOME ACCRUED OR ARISEN IN INDIA. THEREFORE, FURTHER QUESTION OF APPLICABILITY OF TDS PROVISION IS NOT APPLICABLE IN THIS CASE. IN THIS BACKGROUND, C IT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO CAN CEL TDS AMOUNT LEVIED U/S. 201(1) ALONG WITH INTEREST U/S. 201(1A). THIS VIEW IS FORTIFIED BY DECISION OF HONBLE SUPRE ME COURT IN CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. VS. CIT & ANOTHER, 327 ITR 456 @ 460 (SC), TRANSMISSION CORPORATION OF INDIA 239 ITR 587 (SC) AND DECISION OF ITAT, AHMADABAD D BENCH IN ITA NO. 3065/AHD/2010 FOR A.Y. 2007-08 IN CASE O F SHRI PANKAJ A SHAH VS. ITO. 4. SIMILAR ISSUE AROSE IN OTHER TWO YEARS. FACTS B EING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT IN CLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO CANCEL TDS AMOUNT LEVIED U/S. 201(1) ALONGWITH INTEREST U/S.201(1A) FOR ALL THESE YEARS. I.T.A. NOS. 3934, 3935 & 3936/AHD/2004 FOR A.Y. 01- 02, 02-03 & 03-04 (ITO VS. ASIATIC COLOUR CHEM. INDS.LT D.) PAGE 7 5. IN RESULT, REVENUES APPEALS IN ALL THREE YEARS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 19 TH DAY OF FEBRUARY, 2015. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA # # # # %& %& %& %& '&' '&' '&' '&' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ,, - / CONCERNED CIT 4. -- / CIT (A) 5. &12 %, , / DR, ITAT, AHMEDABAD 6. 256 78 / GUARD FILE. BY ORDER / # , 9/ , , ;