M/s Apsara Silks, Bangalore V. ITO, Bangalore

ITA 442/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0407 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C DAS JT
• Assessee Lawyers: ASHOK KULKARNI
• Keywords: Double taxation relief; Permanent establishment
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NOS.442 TO 444/BANG/2015 ASSESSMENT YEARS : 2008-09 TO 2010-11 M/S. APSARA SILKS, NO.46, 1 ST B CROSS, DORESANIPALYA, BANNERGHATTA ROAD, BENGALURU 560 076. PAN: AACFA 3739N VS. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD 1(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI ASHOK KULKARNI, ADVOCATE RESPONDENT BY : SHRI K.C. DAS, JT. CIT(DR) DATE OF HEARING : 24.04.2016 DATE OF PRONOUNCEMENT : 29.04.2016 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER ALL THESE 3 APPEALS ARE FILED BY THE ASSESSEE WHI CH ARE DIRECTED AGAINST THE COMBINED ORDER OF LD. CIT (APPEALS)-12, BENGALURU DATED 20.1.2015 FOR THE ASSESSMENT YEARS 2008 - 09 TO 201 0 - 11. ALL THESE ITA NOS.442 TO 444/BANG/2015 PAGE 2 OF 7 APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS RAISED IN ITA NO.442/BANG/2015 FOR A.Y. 2008-09 ARE AS UNDER:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEALS)- 12, BENGALURU IS OPPOSED TO LAW AND FACTS OF THE CA SE. 2. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 2 01(1) & 201(1A) ARE NOT APPLICABLE IN THE FACTS AND CIRCUMS TANCES OF THE CASE. 3. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THERE WAS NO STATUTORY OBLI GATION ON THE APPELLANT TO DEDUCT TAX ON THE COMMISSION PAID TO T HE NON- RESIDENT AGENTS. 4. ALTERNATIVELY AND WITHOUT PREJUDICE, ASSUMING TH ERE WAS A DEFAULT ON THE PART OF THE APPELLANT THE ACT OF NON -DEDUCTION IS ATTRIBUTABLE TO A BONAFIDE ERROR ON THE PART OF THE APPELLANT. 5. THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE APPRECIATED THAT THE OBLIGATION TO DE DUCT TAX U/S 195 ARISES ONLY WHEN THE SAID PAYMENTS MADE ARE 'CHARGE ABLE UNDER THE PROVISIONS OF THE IT ACT. 6. ALTERNATIVELY AND WITHOUT .PREJUDICE THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) WAS BOUND BY T HE CIRCULARS ISSUED BY THE CENTRAL BOARD OF DIRECT TAX ES AS REGARDS ITA NOS.442 TO 444/BANG/2015 PAGE 3 OF 7 THE INTERPRETATION OF SECTION 195 TO THE EFFECT THA T WHEN THE PAYMENT IS MADE TO A NON RESIDENT HAVING NO PERMANE NT ESTABLISHMENT IN INDIA THE PROVISIONS OF SECTION 19 5 IS NOT APPLICABLE. 7. THE APPELLANT CRAVES FOR LEAVE TO ADD TO, DELETE FROM OR AMEND THE GROUND OF APPEAL. 3. THE GROUNDS RAISED IN THE REMAINING TWO APPEALS ARE IDENTICAL AND THEREFORE, FOR THE SAKE OF BREVITY, THESE GROUNDS A RE NOT REPRODUCED. 4. FIRST OF ALL, THE LD. AR OF ASSESSEE BROUGHT TO OUR ATTENTION TO PARA NO.15 OF THE ORDER PASSED BY THE ASSESSING OFFICER WHERE HE REPRODUCED EXPLANATION 2 TO SECTION 9(1)(I) OF THE I.T. ACT AN D POINTED OUT THAT THIS EXPLANATION IS APPLICABLE TO THOSE, WHO ARE HAVING ACTIVITIES IN INDIA ON BEHALF OF NON-RESIDENT. BUT IN THE PRESENT CASE, T HE AGENTS BEING NON- RESIDENTS ARE ACTING OUTSIDE INDIA ON BEHALF OF ASS ESSEE BEING RESIDENT IN INDIA AND THEREFORE, THIS EXPLANATION 2 TO SECTION 9(1) (I) IS NOT APPLICABLE IN THE PRESENT CASE. HE ALSO SUBMITTED THAT IN THE PR ESENT CASE, THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LD. CIT (APPEALS) ARE AVAILABLE ON PAGES 13 TO 18 OF THE PAPERBOOK AND AS PER THE SAME, IT COULD BE SEEN THAT IT IS THE SUBMISSION OF THE ASSESSEE B EFORE THE CIT(A) THAT EVEN IF THE PAYMENT TO THE NON-RESIDENT IS LIABLE T O INCIDENCE OF TAX UNDER THE PROVISIONS OF THE ACT AND IN THE EVENT OF CONTR ARY PROVISIONS IN THE DTAA, THEN THE SAID PROVISIONS OF DTAA WILL PREVAIL OVER THE PROVISIONS OF THE ACT, IF THE PROVISIONS OF DTAA ARE MORE BENEFIC IAL TO THE ASSESSEE ITA NOS.442 TO 444/BANG/2015 PAGE 4 OF 7 UNDER SUB-SECTION (2) OF SECTION 90 OF THE I.T. ACT . HE ALSO SUBMITTED THAT RELEVANT PROVISIONS OF THE DTAA BETWEEN INDIA AND S TATE OF QATAR ARE AVAILABLE AT PAGES 20 TO 39 OF PB. IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE 25 OF PB CONTAINING ARTICLE 7 OF DTAA AND IT W AS POINTED OUT THAT AS PER ARTICLE 7 OF DTAA BETWEEN INDIA AND QATAR, THE PROFITS OF AN ENTERPRISE OF CONTRACTING STATE SHALL BE CHARGEABLE ONLY IN TH AT STATE, UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT (PE) SITUATED THEREIN. IT WAS FURTHER SUBMITTED THAT IT IS NOBODYS CASE THAT THE AGENTS TO WHOM CO MMISSION WAS PAID WERE HAVING PE IN INDIA. IT WAS ALSO SUBMITTED THAT THE RELEVANT PROVISIONS OF DTAA BETWEEN INDIA AND REPUBLIC OF SOUTH AFRICA ARE AVAILABLE AT PAGES 40 TO 61 OF PB; BETWEEN INDIA AND KINGDOM OF SPAIN AT PAGES 62 TO 87 OF PB; BETWEEN INDIA AND GOVT. OF USA AT PAGES 88 TO 1 15 OF PB; BETWEEN INDIA AND SINGAPORE AT PAGES 116 TO 132 OF PB; AND BETWEEN INDIA AND GOVT. OF ARGENTINA REPUBLIC AT PAGES 133 TO 144 OF PB. IT WAS ALSO SUBMITTED THAT IN ALL THESE DTAAS, THE PROVISIONS A RE SAME AND THEREFORE, THE COMMISSION INCOME EARNED BY NON-RESIDENT AGENTS IS NOT LIABLE TO TAX IN INDIA AND AS A CONSEQUENCE, NO TDS IS DEDUCTIBLE FR OM SUCH PAYMENT OF COMMISSION U/S. 195 OF THE ACT. 5. REGARDING RELIANCE PLACED BY THE LD. CIT (APPEAL S) ON TWO DECISIONS OF AAR, IT WAS SUBMITTED THAT THE FACTS IN THOSE CA SES ARE DIFFERENT AND THEREFORE, THESE RULINGS OF AAR ARE NOT APPLICABLE TO THE PRESENT CASE. IN PARTICULAR, THE LD. AR OF ASSESSEE DREW OUR ATTENTI ON TO PAGE 6 OF WRITTEN ITA NOS.442 TO 444/BANG/2015 PAGE 5 OF 7 SUBMISSIONS BEING REPRODUCTION OF RULING OF AAR IN THE CASE OF RAJIV MALHOTRA, 284 ITR 564 (AAR) AND HE POINTED OUT THAT IN THIS ORDER, AAR HAS REFERRED TO ITS OWN ANOTHER RULING IN IND. TELESOFT P. LTD., 267 ITR 725 (AAR) AND IT IS STATED THAT IN THAT CASE, AGENTS WERE SE CURING BUSINESS FROM OUTSIDE INDIA AND THIS RULING WAS DISTINGUISHED BY AAR IN THE CASE OF RAJIV MALHOTRA (SUPRA) BY STATING THAT THE FACTS IN THAT CASE ARE DIFFERE NT, BECAUSE IN THAT CASE, THE NON-RESIDENT AGENTS SECURED BUSIN ESS FROM PERSONS ABROAD WHO ARE TO BE PERSUADED TO BOOK THE SPACE AN D PARTICIPATE IN THE EXHIBITION AND TO PAY CHARGES THEREFOR. IT WAS SUB MITTED THAT IN THE PRESENT CASE, THE FACTS ARE SIMILAR TO THE FACTS IN THE CAS E OF IND. TELESOFT P. LTD. (SUPRA) AND THIS RULING OF AAR IS IN FAVOUR OF ASSESSEE. IT WAS SUBMITTED THAT THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN FOL LOWING THE RULING OF AAR IN THE CASE OF RAJIV MALHOTRA (SUPRA) AND NOT FOLLOWING THE RULING IN THE CASE OF IND. TELESOFT P. LTD. (SUPRA) . 6. REGARDING ANOTHER RULING OF AAR RENDERED IN THE CASE OF SKF. BOILERS & DRIERS (P.) LTD., 345 ITR 385 (AAR) , THE LD. AR OF ASSESSEE SUBMITTED THAT IN THAT CASE, BENEFIT UNDER THE PROV ISIONS OF DTAA WAS NOT CLAIMED BY THE ASSESSEE, WHEREAS IN THE PRESENT CAS E, THE ASSESSEE IS CLAIMING BENEFIT UNDER DTAA AND THEREFORE, THIS RUL ING IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 7. THE LD. DR SUPPORTED THE ORDERS OF REVENUE AUTHO RITIES. ITA NOS.442 TO 444/BANG/2015 PAGE 6 OF 7 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE WILL EXAMINE THE VALIDITY OF THE ACTION TAKEN BY THE ASS ESSING OFFICER. AO HAS PROCEEDED ON THIS BASIS THAT AS PER EXPLANATION 2 T O SECTION 9(1) (I), BUSINESS CONNECTION SHALL INCLUDE ANY BUSINESS ACTI VITY WHICH IS CARRIED OUT THROUGH A PERSON ACTING ON BEHALF OF NON-RESIDENT, AS NOTED BY AO IN PARA 16 OF HIS ORDER. IN THE PRESENT CASE, THE NON-RESI DENT COMMISSION AGENT IS CARRYING OUT BUSINESS OUTSIDE INDIA ON BEHALF OF RE SIDENT ASSESSEE AND THEREFORE, IN OUR CONSIDERED OPINION, THIS EXPLANAT ION 2 TO SECTION 9(1) (I) IS NOT APPLICABLE IN THE PRESENT CASE. 9. NOW, WE WILL EXAMINE THE APPLICABILITY OF DTAA B ETWEEN INDIA AND VARIOUS COUNTRIES I.E., QATAR, SOUTH AFRICA, SPAIN, USA, SINGAPORE AND ARGENTINA. ARTICLE 7 IN THE DTAAS REGARDING BUSINE SS PROFITS IS SIMILAR IN ALL THESE DTAAS AND AS PER THE SAME, PROFITS OF AN ENTE RPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT STATE, UNLESS T HE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATES THROUGH A PE SITUATED THEREIN. THEREFORE, IN THE ABSENCE OF A FINDING THAT COMMISS ION AGENTS ARE HAVING PE IN INDIA AS PER ARTICLE 7 OF DTAAS BETWEEN INDIA AND THESE COUNTRIES, THE BUSINESS PROFIT OF COMMISSION AGENTS CANNOT BE BROUGHT TO TAX IN INDIA AND AS PER SECTION 90(2), IF DTAA IS MORE BENEFICIA L THAN THE DOMESTIC LAWS, THEN DTAA HAS TO PREVAIL. 10. IN THIS VIEW OF THE MATTER, THE ORDER OF AO AND CIT (APPEALS) ARE NOT SUSTAINABLE BECAUSE IN THE FACTS OF THE PRESENT CAS E AND LEGAL POSITION AS ITA NOS.442 TO 444/BANG/2015 PAGE 7 OF 7 DISCUSSED ABOVE, COMMISSION PAYMENT MADE BY THE ASS ESSEE TO THESE COMMISSION AGENTS OUTSIDE INDIA FOR PROCURING EXPOR T ORDERS CANNOT BE BROUGHT TO TAX IN INDIA AND AS A CONSEQUENCE, TDS I S NOT DEDUCTIBLE. WE ORDER ACCORDINGLY. 11. IN THE RESULT, ALL THESE APPEALS OF ASSESSEE AR E ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF APRIL, 2016. SD/- SD/- (VIJAY PAL RAO ) ( A.K. GAR ODIA ) JUDICIAL MEMBER ACCOUNTAN T MEMBER BANGALORE, DATED, THE 29 TH APRIL, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.