ACIT 21(1), MUMBAI V. CHIRAG MAHESH BHAKTA, MUMBAI

ITA 4138/MUM/2010

• Counselvise Citation: 413819914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Assessee Lawyers: DINESH RASIKLAL SHAH
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4138/MUM/2010 (ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE 21(1) MR. CHIRAG MAHESH BHAKTA ROOM NO. 601, 6TH FLOOR 410-B, JALDARSHAN RUIA PARK PRATYAKSHAKAR BHAVAN, BKC VS. JUHU, MUMBAI 400049 BANDRA (E), MUMBAI 400051 PAN - AEXPB 6315 G APPELLANT RESPONDENT APPELLANT BY: SHRI ALEXANDER CHANDY RESPONDENT BY: SHRI DINESH RASIKLAL SHAH DATE OF HEARING: 02.08.2011 DATE OF PRONOUNCEMENT: 24.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXII, MUMBAI DATED 10.03.2010. 2. REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE A.O. U/S. 40(A)(IA) [WRONGLY MENTIONED AS 40(A)(IA) IN A PPEAL ORDER] OF COMMISSION FOR NON-DEDUCTION OF TAX AT SOURCE. THE CIT(A) HAS NOT APPRECIATED THE FOLLOWING FACTS : I. THAT THIS COMMISSION PAYMENT WAS MADE FOR SERVICES RENDERED IN INDIA AND HENCE SECTION 9 IS SQUARELY APPLICABLE IN THIS CASE. II. THE CIT(A) HAS RELIED ON CIRCULAR NO. 786 DATED 7.2 .2000 WHICH HAS BEEN WITHDRAWN BY THE BOARD VIDE CIRCULAR NO. 7 OF 2009 DATED 22.10.2009. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN NOT GIVING ANY REASONS NOR ABUT TING THE A.O.S REASONING MENTIONED IN THE ASSESSMENT ORDER TO CONCLUDE THAT THE COMMISSION PAYMENT HAS BEEN MADE FOR SERVI CES RENDERED OUTSIDE INDIA AND HENCE THE COMMISSION PAY MENT IS NOT LIABLE TO TAX IN INDIA. ITA NO. 4138/MUM/2010 MR. CHIRAG MAHESH BHAKTA. 2 3. BRIEFLY STATED, IN THE COURSE OF ASSESSMENT PROCEED INGS THE A.O. EXAMINED THE PAYMENT OF COMMISSION BY THE ASSESSEE AND DISALLOWED AN AMOUNT OF ` 63,48,139/- UNDER SECTION 40(A)(IA) ON THE REASON T HAT THE INCOME PAID BY WAY OF COMMISSION TO THE NON-RESIDEN T HAS TO BE CONSIDERED AS FEES FOR TECHNICAL SERVICES FOR RENDERING MANAGE RIAL AND CONSULTANCY SERVICES, ACCORDINGLY PROVISIONS OF SECTION 195 WIL L APPLY. SINCE ASSESSEE HAS NOT DEDUCTED ANY TAX THE AMOUNT WAS DISALLOWABLE UN DER SECTION 40(A)(IA). THE MATTER WAS CONTESTED BEFORE THE CIT(A). BY THAT TIME THE A.O. HAS RECTIFIED AN AMOUNT OF ` 3,53,432/- DISALLOWED ON ACCOUNT OF COMMISSION PAID FOR PURCHASE OF MATERIAL TO M/S. SAURABH MITTA L AS TDS WAS MADE. THEREFORE, THE DISALLOWANCE WAS RESTRICTED TO ` 59,95,525/-. IT WAS SUBMITTED BEFORE THE CIT(A) THAT THIS AMOUNT WAS PAID TO ONE SHRI MAHENDRA SINGH JAMNADAS, A NON-RESIDENT WHO RENDERED SERVICES ABR OAD FOR EXPORT OF CYCLES AND CYCLE PARTS MANUFACTURED BY ASSESSEE IN THE BUS INESS OF EXPORT TO MOZAMBIQUE, SOUTH AFRICA. IT WAS FURTHER SUBMITTED THAT SHRI MAHENDRA SINGH JAMNADAS HAS RENDERED SERVICES ABROAD AND NON E OF THE SERVICES ARE UTILISED IN INDIA. THEREFORE, AS HE DOES NOT HAVE A NY PERMANENT ESTABLISHMENT, THERE IS NO NEED FOR DEDUCTING ANY T AX AND ACCORDINGLY DISALLOWANCE UNDER SECTION 40(A)(IA) DOES NOT ARISE . FOR THE CONTENTION THAT THE SAID PERSON HAS RENDERED MANAGERIAL SERVICES, I T WAS SUBMITTED THAT SHRI MAHENDRA SINGH JAMNADAS IS ONLY A COMMISSION A GENT, WHO IS RESPONSIBLE FOR (I) LOOKING AFTER SALES AND SEE THA T THE BUYER IS CREDITWORTHY, THE (II) ENSURING PAYMENT AND SALE PROCEEDS ARE REM ITTED. IT IS A COMMISSION SIMPLICITOR AS THE SERVICES ARE RENDERED OUTSIDE IN DIA AND COMMISSION AGENT IS NOT LIABLE TO TAX IN INDIA. AS STATED THE AGENT HAS NO BUSINESS CONNECTION OR ANY ESTABLISHMENT IN INDIA AND RELYING ON THE CI RCULAR NO. 23 DATED 23.07.1969 AND CIRCULAR NO. 786 DATED 07.02.2000, I T WAS SUBMITTED THAT NO TAX WAS DEDUCTIBLE UNDER SECTION 195. ASSESSEE ALSO RELIED ON THE DECISION IN THE CASE OF SPAHI PROJECTS PVT. LTD. 315 ITR 374 IN THIS REGARD. THE LEARNED CIT(A) EXAMINED THE ISSUE AND DELETED THE ADDITION ON THE FOLLOWING REASONS: - 4.5 I HAVE GONE THROUGH THE SUBMISSION OF THE APPE LLANT AND HAVE ALSO NOTED IN DETAIL THE OBSERVATION AND FINDING MA DE BY ASSESSING OFFICER IN THE ORDER PASSED U/S. 143(3). I AM OF TH E CONSIDERED VIEW THAT ENTIRE DISALLOWANCE OF COMMISSION WAS MADE ON THE ITA NO. 4138/MUM/2010 MR. CHIRAG MAHESH BHAKTA. 3 MISUNDERSTANDING THAT COMMISSION PAYMENT IS MADE AL SO ON THE PURCHASES OF GOODS. ON REALISING THE MISTAKE THE AS SESSING OFFICER HAS RECTIFIED THE ORDER BY DELETING THE DISALLOWANC E TO THE EXTENT OF COMMISSION PAID ON PURCHASES. AS REGARD BALANCE COM MISSION PAYMENT MADE TO M/S. MAHENDRA SINGH JAMNADAS OF RS. 59,94,757/- , I AM OF THE VIEW THAT IT IS COMMISSION PAYMENT MA DE OUTSIDE INDIA TO NON-RESIDENT FOR THE SERVICES RENDERED OUTSIDE I NDIA AND THEREFORE THE SAID COMMISSION PAYMENT IS NOT LIABLE TO TAX IN INDIA. FURTHER CIRCULAR NO. 786 DT 07-02-2000 WAS IN FORCE IN THE ACCOUNTING PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08 AND HAS BEEN RE CENTLY WITHDRAWN ON 22/10/2009. THEREFORE, OTHERWISE ALSO THE APPELLANT IS COVERED BY CIRCULAR NO. 786 AND THEREFORE NO TAX IS DEDUCTIBLE ON THE COMMISSION PAYMENT MADE TO M/S. MAHENDRA SINGH JAMNADAS OF RS.59,94,757/-. 4. THE LEARNED D.R. SUBMITTED THAT THE SERVICES RENDER ED BY SHRI MAHENDRA SINGH JAMNADAS ARE TO BE CONSIDERED AS MAN AGERIAL SERVICES AS DEFINED UNDER SECTION 9 OF THE I.T. ACT. THEREFORE THE SAME IS COVERED BY PROVISIONS OF SECTION 195. SINCE ASSESSEE FAILED TO DEDUCT TAX THE SAME WAS DISALLOWABLE UNDER SECTION 40(A)(IA). 5. THE LEARNED COUNSEL, HOWEVER, REFERRED TO PAPER BOO K AND SUBMITTED THAT ASSESSEE WAS PAYING SIMILAR COMMISSION IN EARL IER YEARS AND THERE WAS NO SUCH DISALLOWANCE AND THE ISSUE OF TDS NEVER ARO SE AS THE SAID PERSON HAS NO PERMANENT ESTABLISHMENT IN INDIA AND THE AMO UNT WAS NOT TAXABLE AS THE SERVICES WERE NOT RENDERED IN INDIA. HE RELIED ON THE FOLLOWING CASE LAWS: - I. SPAHI PROJECTS (P) LTD. 315 ITR 374 (AAR) II. ARMAYESH GLOBAL VS. ACIT 45 SOT 69 (MUM) III. CIT VS. TOSHOKU LTD. 125 ITR 525 (SC) IV. SHERATON INTERNATIONAL INC. VS. DY. DIRECTOR OF INC OME TAX 107 ITD (DEL) V. LINDE A.G. VS. ITO 62 ITD 330 (MUM) HE ALSO PLACED ON RECORD THE APPOINTMENT ORDER GIVE N BY THE ASSESSEE TO SUPPORT THE FACT THAT SHRI MAHENDRA SINGH JAMNADAS IS A RESIDENT OF PORTUGAL. 6. WE HAVE EXAMINED THE ISSUE. IT IS ON RECORD THAT TH E SAID AGENT WAS RENDERING SERVICES IN THE FIELD OF BOOKING ORDERS A ND EXAMINING THE CREDITWORTHINESS OF THE BUYER AND OVERSEEING THE PA YMENT TO ASSESSEE IN THE BUSINESS OF EXPORT OF CYCLE AND CYCLE PARTS. THE SA ID SHRI MAHENDRA SINGH ITA NO. 4138/MUM/2010 MR. CHIRAG MAHESH BHAKTA. 4 JAMNADAS IS A RESIDENT OF PORTUGAL BUT WAS APPOINTE D AS AGENT FOR MOZAMBIQUE, SOUTH AFRICA. THERE IS NO EVIDENCE ON R ECORD THAT THESE SERVICES ARE RENDERED IN INDIA. ON SIMILAR FACTS IN THE CASE OF ARMAYESH GLOBAL VS. ACIT 45 SOT 69 (MUM) THE ISSUE WAS CONSI DERED AS UNDER: - SECTION 9, READ WITH SECTIONS 40(A)(I) AND 195, OF THE INCOME-TAX ACT, 1961, INCOME DEEMED TO ACCRUE OR ARISE IN INDIA ASSESSMENT YEAR 2007-08- ASSESSEE WAS USING SERVICES OF AN OVERSEAS COMMISSION AGENT FOR PROCURING EXPORT ORDERS- COMMISSION WAS P AID TO AGENT WITHOUT DEDUCTION OF TAX AT SOURCE- ASSESSING OFFIC ER OPINED THAT SERVICES RENDERED BY AGENT WERE MANAGERIAL IN NATUR E AND ASSESSEE WAS LIABLE TO DEDUCT TAX AND MADE DISALLOWANCE TO E XTENT OF PAYMENT MADE ON APPEAL, COMMISSIONER (APPEALS) UPHELD DIS ALLOWANCE MADE BY ASSESSING OFFICER HOLDING THAT PAYMENT FELL WITHIN MEANING OF FEES FOR TECHNICAL SERVICES WHETHER SINCE OV ERSEAS AGENT DID NOT RENDER ANY SERVICES IN INDIA AND IT HAD NO PLACE OR PERMANENT ESTABLISHMENT IN INDIA, IN ABSENCE OF ANY SERVICE H AVING BEEN RENDERED IN INDIA, NO PART OF COMMISSION PAID TO OV ERSEAS AGENT COULD BE SAID TO BE CHARGEABLE IN INDIA UNDER ACT HELD, YES. HELD: THE OVERSEAS AGENT DID NOT RENDER ANY SERVICE S IN INDIA. IT HAD NO PLACE OR PERMANENT ESTABLISHMENT IN INDIA. I T WORKED ABROAD AND PROCURED ORDERS. THE ORDERS WERE SENT DIRECTLY BY THE FOREIGN PURCHASERS REMITTED TO THE ASSESSEE IN INDIA AND EV EN THE PAYMENT FOR EXPORT WAS RECEIVED BY THE ASSESSEE IN FOREIGN CURRENCY DIRECTLY FROM FOREIGN PURCHASERS AND THE COMMISSION WAS PAID TO FOREIGN AGENT THEREAFTER AS A PERCENTAGE OF SALES IN TERMS OF THE AGENCY AGREEMENT. THE PAYMENT MADE TO OVERSEAS COMMISSION AGENT BY THE ASSESSEE WAS NOT FOR TECHNICAL/MANAGERIAL SERVICES. THEREFORE, IN THE ABSENCE OF ANY SERVICE HAVING BEEN RENDERED IN INDI A, NO PART OF THE COMMISSION PAID TO THE OVERSEAS AGENT COULD BE SAID TO BE CHARGEABLE IN INDIA AND IN THE ABSENCE OF ANY INCOME CHARGEABL E TO TAX IN INDIA, QUESTION OF APPLYING SECTION 195 DID NOT ARISE. 7. SIMILAR VIEW WAS ALSO TAKEN IN THE CASE OF DIVIS L ABORATORIES LTD. 10 ITR (TRIB) 501 (HYD) WHEREIN IT WAS HELD AS UNDER: - HELD, DISMISSING THE APPEAL, (I) THAT AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTRY AND NO PART OF HIS INCOME ARISES IN INDIA AND HIS COMMISSION IS USUALLY REMITTED DIR ECTLY TO HIM BY WAY OF TELEGRAPHIC TRANSFER OR CHEQUE/DEMAND DRAFT POST ED IN INDIA AND THEREFORE SUCH AN OVERSEAS AGENT WAS NOT LIABLE TO INCOME-TAX IN INDIA ON THESE COMMISSION PAYMENTS. SECTION 195 OF THE AC T HAD TO BE READ ALONG WITH THE CHARGING SECTIONS 4, 5 AND 9 OF THE ACT. ONE SHOULD NOT READ SECTION 195 TO MEAN THAT THE MOMENT THERE WAS A REMITTANCE THE OBLIGATION TO DEDUCT TAX AT SOURCE AUTOMATICALLY AR ISES. THEREFORE NO TAX WAS DEDUCTIBLE UNDER SECTION 195 OF THE ACT ON COMM ISSION PAYMENTS AND CONSEQUENTLY THE EXPENDITURE ON EXPORT COMMISSI ON PAYABLE TO ITA NO. 4138/MUM/2010 MR. CHIRAG MAHESH BHAKTA. 5 NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA WA S ALLOWABLE EXPENDITURE AND WAS OUTSIDE THE AMBIT OF SECTION 40 (A)(IA) OF THE ACT. THE COMMISSIONER (APPEALS) OBSERVED THAT THE ASSESS ING OFFICER HAD NOT BEEN ABLE TO ESTABLISH THAT THERE WAS ANY SPECI FIC INTENTION OF THE PAYMENT TO RECEIVE THE PAYMENT WITHIN THE TERRITORY OF INDIA. THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DIRECTING T HE ASSESSING OFFICER TO DELETE THE ADDITION. 8. SINCE THE AMOUNT OF COMMISSION PAID WAS NOT TAXABLE IN INDIA AS NO SERVICES WERE RENDERED IN INDIA, MERE REMITTANCE TO NON-RESIDENT DOES NOT ATTRACT PROVISIONS OF SECTION 195(1) AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD. VS. CIT 327 ITR 456. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXII, MUMBAI 4. THE CIT XX1, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.