M/s Viscus Oils Pvt. Ltd., V. The ACIT 3(2),

ITA 431/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1445 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 12-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: ANIL KHANDELWAL
• Keywords: Double taxation relief; Services rendered outside India; Additional evidence; Permanent establishment; Non-deduction of tax
• Section: 5(2); 195

Judgement Text

PAGE 1 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER PAN NO. : AAACY6554-D I.T.A.NO. 431/IND/2007 A.Y. : 2004-05 M/S. VISCUS OILS PRIVATE LIMITED, ACIT, CIRCLE 3(2), 55/1/2-C, NEW PALASIA, INDORE. VS INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ANIL KHANDELWAL, CA RESPONDENT BY : SMT. APARNA KARAN, SR. DR DATE OF HEARING : 22.10.2009 O R D E R PER V.K. GUPTA, A.M. THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF ORD ER OF THE LD. CIT(A)-I, INDORE, DATED 25.6.2007, FOR THE ASSESSME NT YEAR 2004-05. 2. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO PERUSE D THE MATERIAL AVAILABLE ON RECORD. 3. GROUND NO.1 READS AS UNDER :- PAGE 2 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF SUNDRY CREDITORS OF RS. 2,06,276/- U/S 41(1) OF THE ACT AN D THE SAME MAY KINDLY BE DELETED. 4. THE FACTS, IN BRIEF, ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE AMOUNT OF SIX SUNDRY CREDITORS AGGREGATING TO RS. 2,43,712-50 WERE OUTSTANDING FOR MORE THAN THREE YEARS. THE A.O. HELD THAT THE OUTSTANDING BALANCE O F THESE CREDITORS WAS NOT PAYABLE AND THE ASSESSEE SHOULD HAVE WRITTEN IT BACK, WHICH IT HAD NOT DONE. HENCE, HE TAXED THE IMPUGNED SUM AS INCOME OF THE ASSESSEE U/S 41(1) OF THE INCOME-TAX ACT, 1961. AGGRIEVED BY THI S, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A ), WHEREIN DETAILS OF PAYMENT MADE TO FOUR PARTIES SUBSEQUENTLY WERE FURN ISHED. THE LD. CIT(A) TO THIS EXTENT ACCEPTED THE CLAIMS OF THE AS SESSEE AND IN RESPECT OF REMAINING CREDITORS, HE UPHELD THE ACTION OF THE A. O. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED THE FACTS AND SUBMITTED THAT FACTUM OF REMISSION SHOULD NOT BE PR ESUMED. IT WAS ALSO SUBMITTED THAT THERE WAS NO WRITE OFF OR ANY OTHER EVENT IN THE YEAR UNDER CONSIDERATION , WHICH COULD INDICATE THAT THE ASSES SEE WAS NO MORE LIABLE TO PAY THESE AMOUNTS. HE ALSO CONTENDED THAT THESE AMOUNTS HAD BEEN SHOWN AS LIABILITY IN THE BALANCE SHEET, HENCE, THE SE WERE NOT TIME BARRED. PAGE 3 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE HE FURTHER CONTENDED THAT THE DECISION RELIED ON BY THE CIT(A) WAS DISTINGUISHABLE ON FACTS AS IN THOSE CASES, THE ASS ESSEE HAD WRITTEN BACK THE OUTSTANDING AMOUNT IN PROFIT AND LOSS ACCOUNT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 8. IT IS NOTED THAT THE LD. CIT(A) HAS UPHELD THE IMPU GNED ADDITION MERELY FOR THE REASON THAT THESE SUMS ARE OUTSTANDING FOR MORE THAN 3 YEARS, WHICH, IN OUR OPINION, IS NOT CORRECT VIEW AS SO LONG SUCH DEBTS ARE SHOWN AS PAYABLE BY THE ASSESSEE IN ITS B ALANCE SHEET, THE SAME CANNOT BE TREATED AS TIME BARRED I.E. THE CREDITORS CAN ENFORCE THE RECOVERY OF THESE DEBTS. WE ALSO FIND THAT THERE IS NO MATER IAL ON RECORD TO SHOW THAT THESE AMOUNTS HAD ACTUALLY BEEN REMITTED BY TH E CREDITORS. WE ARE FURTHER OF THE VIEW THAT THE DECISIONS RELIED ON BY THE CIT(A) ARE FAIRLY DISTINGUISHABLE ON FACTS AS IN BOTH THOSE CASES, TH E SUMS WERE CREDITED TO THE PROFIT AND LOSS ACCOUNT BY THOSE ASSESSEES, WHI CH IS NOT SO IN THE PRESENT CASE. ACCORDINGLY, WE HOLD THAT THE ORDER O F THE LD. CIT(A) IS NOT CORRECT IN LAW, HENCE, WE REVERSE THE SAME AND DIRE CT THE A.O. TO DELETE THE ADDITION. 9. GROUND NO. 2 READS AS UNDER :- PAGE 4 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSE UNDER THE HEAD SERVICE CHARGE AMOUNTING T O RS. 1,92,640/- U/S 40(A)(I)(A) OF THE ACT AND THE SAME MAY KINDLY BE DELETED. 10. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE PAID A SUM OF RS. 1,92,640/- TO ONE MR.LI YUNTAO, A CHINESE CITIZEN A S SERVICE, COORDINATION AND EQUIPMENT TESTING CHARGES, THE SER VICES FOR WHICH HAD BEEN RENDERED BY SUCH PERSON IN CHINA. THE ASSESSEE DID NOT DEDUCT WITHHOLDING TAX ON SUCH PAYMENTS. THE A.O. FORMED A N OPINION THAT THESE PAYMENTS WERE COVERED UNDER THE TERM FEE FOR TECHN ICAL SERVICES AND NON-DEDUCTION OF TAX THEREON ATTRACTED THE PROVISIO NS OF SECTION 40(A)(I)(A) AND, ACCORDINGLY, HE DISALLOWED THE IMP UGNED PAYMENT. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER INTO APPEAL BEFORE THE LD. CIT(A), WHEREIN THE ASSESSEE EXPLAINED THAT SER VICES, BY SUCH PERSON, HAD BEEN RENDERED IN CHINA IN CONNECTION WITH IMPOR T OF GOODS BY THE ASSESSEE FROM THAT COUNTRY AND AS PER THE PROVISION S OF DTAA WITH CHINA, SUCH PERSON WAS NOT LIABLE TO PAY TAX ON THI S IN INDIA, HENCE, THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TAX AT SOURCE THEREON. THE LD. CIT(A), HOWEVER, HELD THAT NEITHER THE A.O. NOR THE ASSESSEE HAD BROUGHT ON RECORD THE RELEVANT ARTICLES OF DTAA AS WELL AS THE NECESSARY RECORD TO SUPPORT ITS CONTENTION. THEREAFTER, HE RELYING ON T HE PROVISIONS OF SECTION PAGE 5 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE 195 OF THE ACT HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT. ACCORDINGLY, HE CONFIRMED THE ACTION OF THE A.O. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THE PHOTOCOPIES OF THE PASSPORT TO SUBSTANTIATE ITS CLAIM MADE BEFO RE THE REVENUE AUTHORITIES THAT THE ASSESSEE NEVER VISITED INDIA A ND THESE SERVICES WERE RENDERED IN CHINA. ACCORDINGLY, HE REQUESTED FOR AD MISSION OF THESE DOCUMENTS AS ADDITIONAL EVIDENCE. THE LD. DEPARTMEN TAL REPRESENTATIVE, ON THE OTHER HAND, OPPOSED THE SAME. WE, HOWEVER, O N DUE CONSIDERATION OF THE FACTS, ADMIT THE SAME AS IT IS IN THE NATURE OF SUPPORTIVE EVIDENCE TO SHOW THAT THE CONCERNED PERSON DID NOT RENDER THE S ERVICES IN INDIA. 12. THEREAFTER, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAD NO PERMANENT ESTABLISHMENT IN INDIA AND THESE SERVI CES BEING RENDERED OUTSIDE INDIA, HENCE, SUCH SERVICE CHARGES WERE NOT ASSESSABLE AS HIS INCOME IN INDIA. IN SUPPORT OF HIS CLAIM THAT NO TA X AT SOURCE WAS REQUIRED TO BE DEDUCTED, HE RELIED ON THE CIRCULAR NO. 786 D ATED 7 TH FEBRUARY, 2000, WHEREIN IT HAD BEEN CLARIFIED THAT NON-RESIDENT AGE NTS OPERATING OUTSIDE THE COUNTRY WERE NOT LIABLE TO BE TAXED IN INDIA ON PAYMENT MADE BY RESIDENT ASSESSEE ON ACCOUNT OF EXPORT COMMISSION A ND SERVICE CHARGES PAYABLE FOR SERVICES RENDERED BY THEM OUTSIDE INDIA AND, THEREFORE, IN VIEW OF THE PROVISIONS OF SECTION 5(2) AND SECTION 9 OF THE ACT, THE PAGE 6 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TAX ON THIS P AYMENT. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANSA CARG O INDIA PRIVATE LIMITED VS. DY. CIT, AS REPORTED IN 140 TAXMAN 1, W HEREIN IT WAS HELD THAT IF PAYMENT TO NON-RESIDENT WAS NOT CHARGEABLE TO TAX UNDER THE ACT, THEN, PROVISIONS OF SECTION 195 WERE NOT ATTRACTED. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CAS E OF INDOPEL GARMENTS (P) LIMITED VS. DY. CIT, AS REPORTED IN 86 ITD 102, WHEREIN IT WAS HELD THAT WHERE THE FOREIGN CONCERN WAS ACTING AS SELLIN G AGENT FOR THE ASSESSEE FOR CANVASSING ORDER OUTSIDE INDIA AND NO SERVICES WERE RENDERED BY IT WITHIN THE TAXABLE TERRITORY OF INDIA, THE AMOUNT P AYABLE AS SALES COMMISSION WAS NOT LIABLE TO TAX AS INCOME DID NOT ARISE OR ACCRUE TO THE FOREIGN CONCERN IN INDIA AND, THEREFORE, NO DISALLO WANCE COULD BE MADE U/S 40(A)(I) ON THE GROUND THAT TAX WAS NOT DEDUCTE D AT SOURCE U/S 195 FROM THE REMITTANCE MADE TO THE FOREIGN CONCERN. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF TRANSMISSION CORPORATION OF A.P.LIMITED VS. CIT, AS REPORTED IN 239 ITR 587, WHEREIN THE HON'BLE SUPREME COURT HAD HELD THA T FOR DEDUCTION OF TAX AT SOURCE U/S 195 MAIN CONSIDERATION WOULD BE W HETHER PAYMENT TO THE NON RESIDENT WAS CHARGEABLE TO TAX UNDER THE PR OVISIONS OF THE ACT OR PAGE 7 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE NOT. ACCORDINGLY, IT WAS PLEADED THAT THE DISALLOWA NCE CONFIRMED BY THE CIT(A) WAS NOT JUSTIFIED. 13. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, REFERRED TO THE PROVISIONS OF SECTION 9(VII)(B) OF THE ACT AND CONTENDED THAT PAYMENT MADE BY THE ASSESSEE TO SUCH PERSON WA S COVERED THEREUNDER, HENCE, THE ASSESSEE WAS LIABLE TO DEDUC T THE TAX THEREON. SHE FURTHER CONTENDED THAT CIRCULAR NO. 786 REFERRED TO EXPORT COMMISSION AND, IN THE PRESENT CASE, THE ASSESSEE HAD PAID SER VICE CHARGES, HENCE ,THIS CIRCULAR WAS NOT OF ANY HELP TO THE CAUSE OF THE AS SESSEE. 14. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. 15. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS MADE PAY MENT TO A CHINESE CITIZEN, WHO HAS RENDERED SERVICES TO THE A SSESSEE OUTSIDE INDIA IN CONNECTION WITH GOODS IMPORTED BY THE ASSESSEE F ROM THAT COUNTRY. WE FURTHER FIND THAT THE LD. CIT(A) HAS MADE THE DISAL LOWANCE IN A SUMMARILY MANNER BY HOLDING THE A.O. AND THE ASSESS EE RESPONSIBLE FOR NOT BRINGING THE PROVISION OF DTAA TO HIS ATTENTION AND OTHER FACTS ON RECORD. WE ARE UNABLE TO UNDERSTAND THAT HOW THE LD . CIT(A) WAS INCAPACITATED TO GET THOSE THINGS HIMSELF. HAVING S TATED SO, HOWEVER, WE FIND THAT SUCH PERSON IS NOT HAVING ANY PERMANENT E STABLISHMENT IN INDIA AND, THEREFORE, EVEN THOUGH THE IMPUGNED PAYMENT FA LLS WITHIN THE PAGE 8 OF 8 I.T.A.NO.431/IND/2007 VISCUS OILS PRIVATE LIMITED, INDORE PROVISIONS OF SECTION 9(VII)(B), HAVING REGARD TO T HE PROVISIONS OF SECTION 5(2), SUCH PAYMENT IS NOT A TAXABLE INCOME AS PER T HE PROVISIONS OF INCOME-TAX ACT, 1961. ONCE IT IS SO, PROVISIONS OF SECTION 195 DO NOT COME INTO PLAY AND ,CONSEQUENTLY, THE PROVISIONS OF SECTION 40(A)(I)(A) ARE ALSO NOT ATTRACTED. IT IS FURTHER NOTED THAT TH E JUDICIAL DECISIONS CITED BY THE ASSESSEE ALSO SUPPORT THE CLAIMS MADE BY THE AS SESSEE. WE FURTHER FIND THAT IN C.B.D.T. CIRCULAR NO. 786 APART FROM E XPORT COMMISSION CHARGES PAYABLE FOR SERVICES RENDERED OUTSIDE INDIA ARE ALSO COVERED, HENCE, THERE IS NO MERIT IN THE RELEVANT CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE. ACCORDINGLY, WE HOLD THAT NO DISALL OWANCE IS WARRANTED. THUS, THIS GROUND OF THE ASSESSEE IS ALSO ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2009. SD/- SD/- (JOGINDER SINGH) (V. K. GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :18 TH NOVEMBER, 2009. CPU* 512D12