ADIT, Jaipur V. SHRI SUMIT GUPTA, Jaipur

ITA 41/JPR/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82743 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Keywords: Business income; Opportunity of being heard; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE : SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM ITA NO. 41/JP/2012 ASSESSMENT YEAR : 2006-07 PAN NO. ABPPG 3787 J ASSTT. DIRECTOR OF INCOME TAX SHRI SUMIT GUPTA, (INTERNATIONAL TAXATION), JAIPUR VS. PROP: M/S TAB INDIA GRANITES PVT. LTD., 502 APPEX MALL, TONK ROAD, JAIPUR. REVENUE BY : SHRI D.C. SHARMA ASSESSEE BY : SHRI P.C. PARWAL DATE OF HEARING : 06/08/2014 DATE OF PRONOUNCEMENT : 28/08/2014 ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 21/10/2011 BY THE LEARNED CIT(A)-II, JAIPUR FOR A.Y . 2006-07. THE SOLITARY GROUND OF APPEAL IS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT NO WITHHOLDING OF TAXES ARE REQUIRED UNDER SECTION 195 ON THE PAYMENTS MADE BY THE ASSES SEE TO NON-RESIDENT FOR PURCHASE OF NEW DESIGNS OF FURNITURE CLEARLY BEING T RANSFER OF SPECIAL KNOWLEDGE AND IN IGNORING THE FACT THAT CIRCULAR NO. 786 DATED 07/2/2000 HAS BEEN WITHDRAWN WITH RETROSPECTIVE EFFECT BY CIRCULAR NO. 7/2009 DATED 22/10/2009 ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 2 2. IN THIS CASE, TDS VERIFICATION WAS CONDUCTED IN TH E CASE OF M/S TAB INDIA GRANITES PVT. LTD. ON 18/03/2010. THE ASSESSEE HAD MADE PAYMENTS TO VARIOUS NON-RESIDENTS IN FOREIGN CURRENCY ON ACCOUN T OF SALES COMMISSION RS. 85,21,582/- AND ADVERTISING RS. 12,61,188/- WITHOUT WITHHOLDING TAX U/S 195 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) DURING THE FINANCIAL YEAR 2005-06. THE ASSESSING OFFICER GAVE R EASONABLE OPPORTUNITY OF BEING HEARD ON BOTH THE ISSUES, WHICH WAS AVAILED BY THE ASSESSEE. IT WAS HELD THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PRO VISIONS U/S 195 OF THE ACT FOR WITHHOLDING OF TAX ON REMITTANCES TO THE NON-RES IDENTS ON ACCOUNT OF COMMISSION/MANAGERIAL SERVICES AND ON ADVERTISEMENT RELYING ON THE CIRCULAR NO. 23 DATED 23/7/1969 AND CIRCULAR NO. 786 DATED 0 7/2/2002 OF THE CBDT. VIDE FINANCE ACT, 1976, A SOURCE RULE WAS PROVIDED I N THE SAID SECTION THROUGH INSERTION OF CLAUSES (V),(VI) AND (VII) RELATING TO REMITTANCES ON ACCOUNT OF INTEREST, ROYALTY OR FEES FOR TECHNICAL SERVICES. I T WAS PROVIDED, INTER ALIA, THAT IN CASE OF PAYMENTS OF FEES FOR TECHNICAL SERVICES RECEIVED FROM A RESIDENT PAYER, INCOME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA, EXCEPT WHERE THE FEES FOR TECHNICAL SERVICE ARE RELATABLE TO A BUSIN ESS OR PROFESSION CARRIED ON BY THE RESIDENT PAYER OUTSIDE INDIA OR FOR MAKING O R EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA. THE CONTENTION OF THE ASSE SSEE WAS THAT THE SALES COMMISSION WAS PAID TO NON-RESIDENTS FOR THE SERVICE S PROVIDED OUTSIDE INDIA ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 3 AND THE SAID AMOUNT WAS NOT CHARGEABLE TO TAX IN IND IA AS THE SAID COMPANIES WERE NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA AND WHATEVER SERVICE BEING RENDERED BY THEM WERE OUTSIDE INDIA. THE ASSESS EE RELIED BEFORE THE LEARNED ASSESSING OFFICER AN ORDER IN THE CASE OF R AJIV MALHOTRA, LOTUS EXHIBITION MARKETING SERVICES A.A.R. NO. 971 OF 200 5, WHICH WAS NOT APPLICABLE IN CASE OF THE ASSESSEE. HE FURTHER ANAL YSED SECTION 9 OF THE ACT. THE ASSESSING OFFICER RELIED UPON THE FOLLOWING CASE LAWS:- I. WALLACE PHARMACEUTICALS (P) LTD. IN RE AAR NO. 658 OF 2005 278 ITR 97 (AAR). II. SOUTH WEST MINING LTD. IN RE AAR NO. 660 OF 20 05 278 ITR 233 (AAR). III. MARUTI UDYOG LTD. VS. ASTT. DIRECTOR OF INCOM E TAX 2010 TIOL 22 ITAT DEL DATED 31/08/2010. IV. CIT VS. SAMSUNG ELECTRONICS (KARNATAKA) ITA NO. 2808 OF 2005 DATED 24/09/2009, 2009 TIOL 629 HC- KAR-IT. THE OTHER CONTENTION OF THE ASSESSEE THAT THE ADVER TISEMENT COMPANYS INCOME DOES NOT FALL UNDER THE PROVISIONS OF SECTIO N 9 IS NOT CORRECT AS ACCORDING TO THE SECTION 9(1)(C) ONLY IN THE CASE O F NON-RESIDENT, BEING A PERSON ENGAGED IN THE BUSINESS OF RUNNING A NEWS AGE NCY OR OF PUBLISHING NEWS PAPERS, MAGAZINES OR JOURNALS, NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH OR FROM ACTIVITIES WHI CH ARE CONFINED TO THE ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 4 COLLECTION OF NEWS AND VIEWS IN INDIA FOR TRANSMISSIO N OUT OF INDIA. THIS CLAUSE DOES NOT PERTAIN TO THE CASE OF THE ASSESSEE. THE RE LIANCE OF THE ASSESSEE IN THE CASE OF MORGAN STANLEY AND CO. INC (202 ITR 416) IS OUT OF CONTEXT AND DOES NOT PERTAIN TO THE FACTS OF THE CASE OF THE AS SESSEE. THE ASSESSING OFFICER FURTHER CONCLUDED THAT THE REMITTANCES MADE BY THE ASSESSEE DEDUCTOR ON ACCOUNT OF SALES COMMISSION AND ADVERTISEMENT AR E COVERED UNDER THE EXPRESSION FEE FOR TECHNICAL SERVICES AS DEFINED IN SECTION 9(1)(VII)(B) OF THE ACT AND THE SAME ARE TO BE DEEMED INCOME OF THE PAY EE ACCRUED OR ARISING IN INDIA, CONSEQUENTLY LIABLE FOR WITHHOLDING TAX PLUS SURCHARGE AND EDUCATION CESS AS PER RATES OF TAX PRESCRIBED. THUS, HE IS LIA BLE TO DEDUCT TDS U/S 195 OF THE ACT AND HIS DEFAULT U/S 201(1) OF THE ACT FOR TA X AND INTEREST U/S 201(1A) OF THE ACT. THUS, HE CALCULATED TOTAL PAYMENT OF RS. 15,61,919/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT (A), WHO HAS ALLOWED THE APPEAL BY OBSERVING THAT THE APPELLANT COMPANY IS E NGAGED IN THE BUSINESS OF EXPORT OF GRANITE. THE ASSESSEE PAID COMMISSION OF R S. 85,21,582/- TO VARIOUS NON-RESIDENTS IN FOREIGN CURRENCY. ADVERTISEMENT CH ARGES OF RS. 12,61,188/- TO M/S BNP MEDIA, USA FOR ADVERTISEMENT OF ITS PRODUCT IN THE INTERNATIONAL MONTHLY MAGAZINE STONE WORLD . THE PAYMENT TOWARDS COMMISSION OR ADVERTISEMENT CHARGES DID NOT FALL UNDER MANAGERIAL , TECHNICAL OR CONSULTATION SERVICES AND THEREFORE, NO INCOME COULD BE DEEMED T O HAVE ACCRUED OR ARISING ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 5 TO THE NON-RESIDENT SO AS TO ATTRACT PROVISION OF WI THHOLDING TAX U/S 195 OF THE ACT. THE LEARNED ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND HE TOTALLY RELIED ON EXPLANATIO N INTRODUCED IN SECTION 9 BY FINANCE ACT, 2010. THE PROCURING OF SALES ORDER DID NOT INVOLVE ANY TECHNICAL EXPERTISE, KNOWLEDGE OR SKILLS. IT IS EVIDENT THAT M ANAGERIAL SERVICES ARE THOSE SERVICES THAT INVOLVED THE ACTIVITY OF MANAGING OR CONTROLLING. FOREIGN COMMISSION AGENTS HAVE NEITHER ANY CONTROL OVER THE EXPORT ACTIVITY OF THE ASSESSEE NOR THEY ARE THE FINAL AUTHORITY IN RESPEC T OF THE SAME. THEY ONLY PERFORM A SUBSIDIARY FUNCTION OUTSOURCED TO THEM FO R SAVING THE COST AND CONVENIENCE. HENCE, THE ACTIVITY OF THE FOREIGN COM MISSION AGENTS DOES NOT AMOUNT TO MANAGERIAL SERVICES AND DOES NOT FALL WITH IN THE DEFINITION OF FEES FOR TECHNICAL SERVICES. HE RELIED UPON THE FOLLOWING CASE LAWS:- I. CUSHMAN & WAKEFIELD (S) P. LTD. (305 ITR 208) ( AAR). II. CIT VS. SARA INTERNATIONAL LTD. (217 CTR 491) (D ELHI). III. SIEMENS AKTIENGESELLCHAFT (2010-TIOL-102 ITAT M UMBAI). IV. DCIT VS. DIVIS LABORATORIES LTD. (10 ITR TRIB. 5 01). V. JCIT VS. GEORGE WILLIAMSON (ASSAM) LIMITED (305 ITR AT 422.) VI. SPAHI PROJECTS PVT. LTD. (315 ITR 374). VII. LUFTHANSA CARGO INDIA PVT. LTD. (274 ITR AT 20) . VIII. G.E. INDIA TECHNOLOGIES CENTER PVT. LTD. VS. CIT (327 ITR 456). IX. CIT VS. TATA CHEMICALS LTD. (94 ITR 85). ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 6 X. CARBORANDUM CO. VS. CIT (108 ITR 335). XI. CIT VS. TOSHUKU LTD. (125 ITR 525). XII. DIT VS. SHARELTEN INTERNATIONAL INC. (313 ITR 2 67). XIII. MODERN INSULATORS LTD. (ITA NO. 281/JP/2010) JPR. TRIB). IT IS WELL SETTLED LAW THAT THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE I NCOME TAX ACT. THEREFORE, THE PROPOSITION WAS NOT COMPLETELY FOLLOWED BY THE KARNATAKA HIGH COURT WHILE RENDERING ITS DECISION IN CASE OF SAMSU NG ELECTRONICS CO. LTD. (320 ITR 209). ACCORDINGLY, NO DEMAND U/S 201(1) AND INTE REST U/S 201 (1A) OF THE ACT CAN BE CHARGED IN THE PRESENT CIRCUMSTANCES. TH EREFORE, HE ALLOWED THE APPEAL OF THE ASSESSEE. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED D.R. SUPPORTED THE ORDER OF THE ASSIS TANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) AND ARGUED THAT THE RECIPIENT HAS RENDERED SERVICES IN THE INDIA AND INCOME EARNED IN THE INDIA AND ALSO COVERED UNDER THE EXPLANATION FEES FOR TECHNICAL SE RVICES AS DEFINED IN SECTION 9(1)(VII)(B) OF THE ACT. 5. AT THE OUTSET, THE LEARNED A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND RELIED UPON A RECENT DECISIO N OF THIS BENCH OF THE ITAT IN THE CASE OF THE ADIT, (INTERNATIONAL TAXATION), JA IPUR VS. M/S TAB INDIA GRANITES (P) LTD. IN ITA NOS. 42,43,44,45 & 46/JP/2 012 AND ARGUED THAT THE ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 7 ASSESSEE EXPORTED THE GOODS AND SERVICES TAKEN OUTS IDE THE INDIA AND PAYMENTS WERE MADE OUTSIDE THE INDIA. THUS, SECTION 1 95 OF THE ACT IS NOT APPLICABLE IN ASSESSEES CASE AS NO INCOME DEEMED T O BE ACCRUED OR ARISE IN INDIA UNDER EXPLANATION FEES FOR TECHNICAL SERVICES AS DEFINED IN SECTION 9(1)(VII)(B) OF THE ACT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE EXPORTED GRANITE TO USA AND PAID COMMISSION OF RS. 85,21,582/- ON EXPORT SALE MADE T O M/S AMSHUM & ASH, USA AND ALSO PAID RS. 12,61,181/- TOWARDS ADVERTISEM ENT CHARGES TO M/S BNP MEDIA USA FOR ADVERTISEMENT OF ITS PRODUCT IN AN IN TERNATIONAL MONTHLY MAGAZINE STONE WORLD PRINTED AND PUBLISHED IN USA . THE RECIPIENT OF COMMISSION RENDERED SERVICES OUTSIDE THE INDIA AND CLAIMED AS BUSINESS INCOME. THE RECIPIENT OF COMMISSION IS NON-RESIDENT AND HAD NO PERMANENT ESTABLISHMENT IN INDIA. NO INCOME HAD ACCRUED OR AR ISEN TO THE NON-RESIDENT U/S 9 OF THE ACT IN THE INDIA. THE COORDINATE BENCH IN ITA NOS. 42,43,44,45 & 46/JP/2012 HAD DECIDED IDENTICAL ISSUE AND HELD THA T NO TDS U/S 195 OF THE ACT IS LIABLE TO BE DEDUCTED. THEREFORE, RESPECTFULL Y FOLLOWING THE COORDINATE BENCH DECISION ON SIMILAR FACT, WE UPHELD THE ORDER OF THE LEARNED CIT(A). ACCORDINGLY, THE REVENUES APPEAL IS DISMISSED. ITA NO. 41/JP/2012 ADIT VS. SUMIT GUPTA. 8 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/08/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 28 TH AUGUST, 2014 * RANJAN COPY FORWARDED TO :- 1. ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXAT ION), JAIPUR. 2. SHRI SUMIT GUPTA, JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 41/JP/2012) BY ORDER, AR ITAT JAIPUR.