DCIT, New Delhi V. Sh. Rakesh Anand, New Delhi

ITA 4453/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7675 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 05-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 25-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAKHI BIM AL
• Assessee Lawyers: JMESH KUNTAL
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Advance ruling
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG: JUDICIAL MEMBER ITA NO. 4453/DEL/2013 ASSTT. YR: 2010-11 DCIT CIRCLE 30(1), VS. SH. RAKESH ANAND, NEW DELHI. 3791, DARYA GANJ, NEW DELHI-110002. PAN: ADAPA 4699 L ( APPELLANT ) (RESPONDENT) APPELLANT BY : MS. RAKHI BIMAL SR DR. RESPONDENT BY : SHRI JMESH KUNTAL CA DATE OF HEARING : 11/05/2016. DATE OF ORDER : 27/05/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS REVENUES APPEAL AGAINST THE ORDER DATED 0 7.05.2013, PASSED BY THE LD. CIT(A)-XXV, NEW DELHI, RELATING TO A.Y. 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE HAD DERIVED INCOME AS PROPRIETOR OF M/S EA STERN SURGICAL COMPANY. ASSESSEE HAD FILED RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS. 37,68,780/-. THE AO NOTICED THAT ASSESSEE HAD INCUR RED AN EXPENDITURE OF RS. 35,97,345/- UNDER THE HEAD COMMISSION, WHICH WA S PAID TO NON-RESIDENT AGENT (M/S GLOBAL ENGG. SOLUTIONS FZ CO., DUBAI AS PROVIDED VIDE LETTER DATED 14.3.2013) IN THE P&L A/C. THE AO SHOW CAUSED THE ASSESSEE AS TO 2 WHY NO TDS WS MADE U/S 40(A)(IA) AND, THEREFORE, WH Y THE EXPENDITURE ON COMMISSION SHOULD NOT BE DISALLOWED. THE ASSESSEE F ILED A DETAILED REPLY WHICH HAS BEEN REPRODUCED IN PARA 3.2 OF THE ASSESS MENT ORDER, AS REPRODUCED BELOW: 3.2 ASSESSEE OFFERED HIS EXPLANATION VIDE LETTER D ATED 15,03.2013 AS FOLLOWS (RELEVANT PORTIONS REPRODUCED ): 'WE WOULD LIKE TO REITERATE THE FACT THAT THE COMMISSIO N HAS BEEN PAID TO A NON-RESIDENT COMMISSION AGENT ON THE EXPO RT SALES FOR THE SERVICES RENDERED BY WAY OF SEARCHING PROSPECTI VE FOREIGN' BUYERS/CLIENTS. THE COMMISSION AGENT IS A NON-RESID ENT AND HE HAS RENDERED ALL THE SERVICES REGARDING OUR EXPORT SALE OUT OF INDIA AND PAYMENTS MADE DIRECTLY TO HIM OUTSIDE IND IA. THE CBDT BY ITS RECENT CIRCULAR NO.7 DATED 22.1 0.2 009 HAS WITHDRAWN ITS EARLIER CIRCULARS NO. 23 DATED: 23.07 .2009, 163 DATED 29.05.1975 AND 786 DATED: 7.02.2000. THE MAIN ISSUE IS WHETHER THE COMMISSION MADE TO OVERSEAS AGENTS, WHO ARE NON- RESIDENT ENTITLES, AND WHO RENDER SERVICES ONLY AT SUCH PARTICULAR PLACE, IS ASSESSABLE TO TAX. SECTION 195 OF THE ACT VERY CLEARLY SPEAKS THAT UNLESS THE INCOME IS LIABLE TO BE TAXED IN INDIA, THERE IS NO OBLIGATION TO DEDUCT TAX. NOW, IN ORDER TO DE TERMINE WHETHER THE INCOME COULD BE DEEMED TO BE ACCRUED OR ARISEN IN INDIA, SECTION 9 OF THE ACT IS THE BASIS. THIS SECT ION, IN OUR OPINION, DOES NOT PROVIDE SCOPE FOR TAXING SUCH PAY MENT BECAUSE THE BASIC CRITERIA PROVIDED IN THE SECTION IS ABOUT GENESIS OR ACCRUING OR ARISING IN INDIA, BY VIRTUE OF CONNECTION WITH THE PROPERTY IN INDIA, CONTROL AND MANAGEMENT: VESTED IN INDIA, WHICH ARE NOT SATISFIED IN THE PRESENT CASES . UNDER THESE CIRCUMSTANCES WITHDRAWAL OF EARLIER CIRCULARS ISSUE D BY THE CBDT HAS NO ASSISTANCE TO THE ISSUE IN THE SUBJECT IN ANY WAY, IN DISALLOWING SUCH EXPENDITURE. AN OVERSEAS AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN 'COUNTRY AND NO PART O F HIS INCOME ARISES IN INDIA AND HIS COMMISSION IS USUALLY REMIT TED DIRECTLY 3 TO HIM AND THEREFORE THE SAME IS NOT RECEIVED BY HI M OR ON HIS BEHALF IN INDIA AND SUCH AN. OVERSEAS AGENT IS NOT LIABLE TO INCOME-TAX IN INDIA ON THESE COMMISSION PAYMENTS. THE ABOVE VIEW IS FORTIFIED BY THE JUDGMENT OF APEX COURT IN THE CASE OF CIT VS, TOSHOKU LIMITED REPORTED IN 125 }TR 525. SUPREME COURT IN THE CASE OF CIT VS. TOSHUKU LTD. 1 25 ITR HAS HELD THAT THE COMMISSION EARNED BY THE NON-RESI DENTS FOR SERVICES RENDERED OUTSIDE INDIA COULD NOT BE DEEMED TO BE INCOME WHICH HAD ACCRUED OR ARISEN IN INDIA IN TERM S OF SEE. 9(1)(I) OF THE INCOME TAX ACT ON THE GROUND THAT NO OPERATIONS WERE CARRIED OUT IN INDIA. IT IS ALSO PERTINENT TO NOTE THAT THE SECTION 195 O F THE ACT HAS TO BE READ ALONG WITH THE CHARGING SECTIONS 4,5 AND 9 OF THE ACT THESE ARE THE OBSERVATIONS MADE 1N THE JUDGMENT OF APEX COURT IN THE CASE OF GE INDIA VS. CIT REPORTED IN 3 27 ITR 456, FOR THE PROPOSITION THAT PROVISIONS RELATING TO DED UCTION OF TAX APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE INCOME-TAX ACT HENCE, NO. TAX IS DEDUCTIBLE UND ER SECTION 195 OF THE ACT ON COMMISSION PAYMENTS AND CONSEQUEN TLY THE EXPENDITURE ON EXPORT COMMISSION PAYABLE TO NON-RES IDENT FOR SERVICES RENDERED OUTSIDE INDIA BECOMES ALLOWABLE E XPENDITURE AND THE SAME IS OUTSIDE RIGORS OF THE SECTION 40(LA ) OF THE ACT VERY IMPORTANTLY THIS PAYMENT DOES NOT ALSO FALL WI THIN THE AMBIT OF SECTION 9(1)(VII) OF THE ACT\ AS THE SERVI CES UNDER CONSIDERATION IS NOT FOR ANY TECHNICAL SERVICE REND ERED. IT IS ONLY FOR FACILITATION OF THE SALES OF THE ASSESSEE OUTSI DE INDIA. IN CIT V. SARA INTERNATIONAL LTD. [2008J 8DTR (DEL)] 309, THE DELHI HIGH COURT HAS INTERPRETED THE PROVISIONS OF THE SA ID SECTION IN THE CONTEXT OF SECTION 194J, WHEREIN AT PAGE NO.311 IT HAS BEEN STATED AS FOLLOWS: 'THE EXPRESSION FEES FOR TECHNICAL SERVICES MEANS A NY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION ) FOR THE 4 RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL O R OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR A NY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOM E OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES.' AUTHORITY ON ADVANCE RULING IN THE CASE OF SAPHI PR OJECTS PVT LTD. 315 ITR 374(AAR) HAS HELD THAT THERE COULD POS SIBLY BE NO CONTROVERSY THAT THE AGENT WOULD NOT BE RENDERIN G SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE AN D THEREFORE THE LIABILITY OF TAX CANNOT BE FASTENED ON IT BY IN VOKING THE PROVISIONS DEALING WITH FEE FOR TECHNICAL SERVICES. ON THE BASIS OF ABOVE SUBMISSIONS AND JUDGMENTS IT MAY BE CONCLUDED: A) THAT WITHDRAWAL OF CBDT CIRCULARS DOES NOT AFFEC T THE SITUATION ACIT CIR 30(1), NEW DELHI B) THAT THE AAR DECISION IN THE CASE OF SKF BOILERS AND DRIERS PVT. LTD IS NOT APPLICABLE IN OUR CASE: C) THAT THE COMMISSION PAYMENT DO NOT FALL IN THE C ATEGORY OF TECHNICAL OR CONSULTANCY SERVICES. 3. THE AO, HOWEVER, RELYING ON THE DECISION OF AUTH ORITY ON ADVANCE RULING IN THE CASE OF SKF BOILERS & DRIERS PVT. LTD . HELD THAT SINCE THE RIGHT TO RECEIVE COMMISSION HAD ACCRUED IN INDIA, THEREFO RE, TDS WAS REQUIRED TO BE MADE. THE AO, ACCORDINGLY, MADE A DISALLOWANCE O F RS. 35,97,345/- PAID AS COMMISSION TO FOREIGN AGENT U/S 40(A)(IA). 5 4. LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, OBSERVING THAT COMMISSION PAYMENT HAD BEEN MADE FOR THE SERVICES R ENDERED OUTSIDE THE COUNTRY AND THE PAYMENTS HAD BEEN MADE TO A NON-RES IDENT FOREIGN PARTY WHICH HAS NO PE IN INDIA AND WHOSE INCOME IS ALSO N OT TAXABLE IN INDIA. HE RELIED ON THE DECISION OF ITAT DELHI IN THE CASE OF DCIT VS. NIDHI EXPORTS IN ITA NO. 626/DEL/2012 DATED 7.9.2012. 5. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. 'WHETHER THE LD. CIT (A) IS CORRECT IN DELETING THE ADDITION OF RS. 35,97,345/- MADE BY THE AO FOR CONT RAVENTION OF SECTION 40(A)(I) ON PREMISE THAT COMMISSION PAYM ENTS TO OVERSEAS AGENTS/ NON- RESIDENTS DO NOT ATTRACT PROV ISIONS OF TDS.' 2. 'WHETHER THE LD. CIT (A) IS CORRECT IS NOT APPRE CIATING THE CBDT CIRCULAR NO.7 12009 DATED 20.10.2009 AND T HE RATIO OF THE DECISION OF THE AAR IN THE CASE OF SKF BOILE RS & DRIVERS PVT. LTD. (AAR NO. 983-984 OF 2010) DATED 2 2.02.2012 IN WHICH IT HAS BEEN HELD THAT EXPORT COMMISSION PA ID TO NON - RESIDENT AGENT IS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA, THEREBY ATTRACTING THE PROVISIONS OF SECTION 40(A)( I) READ WITH SECTION 195 OF THE IT ACT, 1961.' 6. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 5 OF THE INCO ME-TAX ACT DEALS WITH SCOPE OF TOTAL INCOME AND AS PER SUB-SECTION (2) T HE TOTAL INCOME OF ANY 6 PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INC LUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR. 6.1. ADMITTEDLY, THE COMMISSION INCOME HAS NOT BEEN RECEIVED IN INDIA BY NON-RESIDENT AND, THEREFORE, WE HAVE TO EXAMINE WHE THER THE COMMISSION INCOME COULD BE SAID TO HAVE ACCRUED OR ARISE OR CO ULD BE DEEMED TO HAVE ACCRUED OR AROSE TO NON-RESIDENT IN INDIA. AS PER S ECTION 9(1)(I), THE INCOME WHICH IS DEEMED TO ACCRUE OR ARISE IN INDIA IS THAT WHICH ACCRUES OR ARISES WHETHER DIRECTLY OR INDIRECTLY, INTER ALIA, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA. THEREFORE, UNLESS THERE IS A B USINESS CONNECTION IN INDIA, IT CANNOT BE SAID THAT INCOME IS DEEMED TO A CCRUE OR ARISE IN INDIA. 6.2. ADMITTEDLY THERE IS NO BUSINESS CONNECTION IN INDIA AS THE ENTIRE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA. THEREFOR E, NOW WE HAVE TO EXAMINE WHETHER ANY INCOME COULD BE SAID TO HAVE AC CRUED OR AROSE TO NON- RESIDENT AS PER SECTION 5(2) OR NOT. 6.3. ADMITTEDLY THE ENTIRE SERVICES HAVE BEEN RENDE RED OUTSIDE INDIA AND THE MOMENT ORDERS WERE PLACED D ON ASSESSEE BY FORE IGN BUYERS THEN THE RIGHT TO RECEIVE COMMISSION ACCRUES IN FAVOUR OF AS SESSEE. THIS RIGHT, IN OUR OPINION, ACCRUES IN PURSUANCE TO SERVICE RENDERED A ND NOT WHEN ONLY THE FINAL ORDER IS EXECUTED FROM INDIA. THEREFORE, IN O UR OPINION, NO INCOME 7 ACCRUED OR AROSE IN FAVOUR OF NON-RESIDENT COMMISSI ON AGENT IN INDIA. WE ARE FORTIFIED IN OUR VIEW BY THE RATIO OF DECISIONS IN THE FOLLOWING CASES: - NIDHI EXPORTS (ITA NO. 626/2012 DATED 7.9.2012 (DEL HI H.C); - CIT VS. TOSHUKU LTD. 125 ITR 525 (SC); AND - GE INDIA VS. CIT 327 ITR 456 (SC). - 6.4. WE, ACCORDINGLY, DO NOT FIND ANY REASON TO INT ERFERE WITH THE ORDER OF LD. CIT(A) AND WE UPHOLD THE SAME. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 27/05/2016. SD/- SD/- (C.M. GARG) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27/05/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.