ACIT 17(2), MUMBAI V. VILAS N TAMHANKAR, MUMBAI

ITA 4522/MUM/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8391 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Assessee Lawyers: AJIT U AMDEKAR
• Keywords: Recovery proceedings; Business income; Non-deduction of tax
• Section: 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 4522/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) ASST. CIT-17(2), ROOM NO. 217, 2 ND FLOOR, PIRAMAL CHAMBERS, MUMBAI-400 012 / VS. VILAS N. TAMHANKAR, 25-26, JENABAI BUILDING, DADA SAHIB PHALKE ROAD, DADAR, MUMBAI-400 014 ./! ./PAN/GIR NO. AABPT 3377 J ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI PAWAN KUMAR BEERLA #$ ' % & / RESPONDENT BY : SHRI AJIT U. AMDEKAR ' ()* % +, / DATE OF HEARING : 23.09.2014 -./ % +, / DATE OF PRONOUNCEMENT : 21.11.2014 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-29, MUMBAI (CIT(A) FOR SH ORT) DATED 01.03.2013, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2009-10 VIDE ORDER DATED 12.12.2011. 2. THE INSTANT APPEAL BY THE REVENUE RAISES THE ISS UE OF THE VALIDITY IN LAW OF THE DISALLOWANCE IN THE SUM OF RS.91,05,348/-, EFFECTED U/S.40(A)(I), SINCE DELETED BY THE FIRST APPELLATE AUTHORITY. 2 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR 3. THE FACTS OF THE CASE ARE BRIEF AND UNDISPUTED. THE ASSESSEE MADE THE IMPUGNED PAYMENT TO ONE, SANGEETA CHOUDHARY, A RESIDENT OF C ANADA, WITHOUT DEDUCTING TAX AT SOURCE. NO APPLICATION U/S.195(2) WAS MADE TO THE A SSESSING OFFICER (A.O.), IN WHOSE VIEW THERE WAS THUS A CONTRAVENTION OF SECTION 195 OF THE ACT AND, CONSEQUENTLY, THE NON- OBSTANTE PROVISION OF SECTION 40(A)(I) WOULD GET ATTRACTED, PROSCRIBING ALLOWANCE OF DEDUCTION OF ANY SUM, NOTWITHSTANDING THE FACT THAT IT MAY OTHERWISE BE DEDUCTIBLE UNDER THE PROVISIONS OF THE ACT, WHERE TAX IS DEDUCTIBLE AT SOURCE THEREON UNDER CHAPTER XVII- B, WHICH IS EITHER NOT BEEN DEDUCTED OR, AFTER DEDU CTION, NOT PAID DURING THE RELEVANT YEAR OR WITHIN THE TIME ALLOWED U/S.200(1). THE DISALLOW ANCE U/S.40(A)(I) WAS, ACCORDINGLY, MADE BY HIM RELYING ON THE DECISION IN THE CASE OF TRANSMISSION CORPN. OF A.P. LTD. VS. CIT [1999] 239 ITR 587 (SC). IN APPEAL, THE ASSESSEE RELIED HEAVILY ON THE DECIS ION BY THE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD. VS. CIT [2010] 327 ITR 456 (SC), WHICH WAS FOUND BY THE LD. CIT(A) TO BE SQUARELY COVERING THE ASSESSEES CASE. THE DISALLOWANCE HAVING BEEN DELETED THUS; AGGRIEVED, THE REVENUE IS IN APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE PAYMENT TO THE PAYEE, SANGEETA CHOUDHARY, EVEN AS CLARIFIED BEFORE THE ASSESSING AUTHORITY, WAS FOR SALES AND MARKETING SU PPORT OUTSIDE INDIA. NO PART OF THE SERVICES, TOWARD WHICH PAYMENT HAD BEEN MADE TO HER , WAS RENDERED IN INDIA; THE PAYEE ALSO HAVING NO PLACE OF BUSINESS OR ESTABLISHMENT I N INDIA. THERE WAS THUS, AS PER THE ASSESSEE, NO QUESTION OF ANY PART OF THE IMPUGNED S UM BEING CHARGEABLE TO TAX IN INDIA; FURTHER RELYING ON THE DECISION IN THE CASE OF GE INDIA TECHNOLOGY (SUPRA). THE FACTS BEING NOT IN DISPUTE, THE ISSUE ARISING IS PRIMARIL Y LEGAL, I.E., WHETHER THE PROVISION OF S. 40(A)(I) IS ATTRACTED IN THE FACTS OF THE CASE. SEC TION 40(A)(I), OVERRIDING SECTIONS 30 TO 38, PROVIDES THAT WHERE ANY INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THE ACT, IS PAID EITHER OUTSIDE IN DIA OR IN INDIA TO A NON-RESIDENT (NOT BEING A FOREIGN COMPANY) OR TO A FOREIGN COMPANY, O N WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B, AND SUCH TAX HAS NOT BEEN DED UCTED OR, AFTER DEDUCTION NOT BEEN 3 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR PAID DURING THE PREVIOUS YEAR OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME ALLOWED U/S. 200(1), THE SAID AMOUNT SHALL NOT BEEN ALLOWED IN COMPUTING THE BUSINESS INCOME. THE FIRST THING, THEREFORE, THAT WE WOULD N EED TO SEE IS WHETHER THE PROVISIONS OF CHAPTER XVII-B ARE ATTRACTED TO THE IMPUGNED PAYMEN T. THE PAYMENTS TO A NON-RESIDENT BEING COVERED UNDER SECTION 195, WE BEGIN BY REPROD UCING THE SAME IN ITS RELEVANT PART, THE INTERPRETATION OF WHICH IS IN ISSUE: OTHER SUMS. 195 . (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RE SIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC) OR SECTION 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' SHALL, AT THE TIME OF CRE DIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WH ICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERN MENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE ( 23D ) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CL AUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF I N CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE; PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115-O. (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SU CH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON-RESIDEN T CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE C ASE OF THE RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASSESSING OFFICER TO DETERMINE, BY GENERAL OR SPECIAL ORDER, THE APPROPRIATE PROPORTION OF SUC H SUM SO CHARGEABLE, AND UPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDE R SUB-SECTION (1) ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABL E. THE LD. CIT(A) HAVING ALLOWED RELIEF TO THE ASSESSE E ON THE BASIS THAT THE DECISION BY THE APEX COURT IN GE INDIA TECHNOLOGY (SUPRA), RENDERED AFTER CONSIDERING THE DECISION IN THE CASE OF TRANSMISSION CORPN. OF A.P. LTD. (SUPRA), COVERS THE ASSESSEES CASE, SO THAT NO TAX WAS DEDUCTIBLE U/S. 195, WHAT WE ARE REQUIRE D TO, IN ORDER TO DECIDE THE REVENUES 4 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR APPEAL THERE-AGAINST, DO IS TO EXAMINE THE VALIDITY OF THE SAID FINDING, AND TOWARD THE SAME, THE SAID DECISION. AS EXPLAINED BY THE APEX COURT THEREIN, IF THE INTE RPRETATION BEING ACCORDED BY THE REVENUE TO SECTION 195, I.E., THAT THE MOMENT PAYME NT TO A NON-RESIDENT IS MADE, THE OBLIGATION TO DEDUCT THE TAX AT SOURCE (TAS) ARISES , IS ACCEPTED, THE SAME WOULD IMPLY OBLITERATING THE WORDS CHARGEABLE UNDER THE PROVIS IONS OF THE ACT OCCURRING IN SECTION 195(1). SECTION 195 FALLS UNDER PART B OF CHAPTER X VII OF THE ACT, TITLED COLLECTION AND RECOVERY OF TAX. AS EXPLAINED THEREIN, THE ACT FOR MS ONE INTEGRATED CODE, AND THE CHARGING SECTIONS CANNOT BE READ DE HORS THE MACHINERY SECTIONS. DUE WEIGHT HAS TO BE GIVEN TO EVERY WORD IN THE SECTION. THE INTERPRETAT ION BY THE REVENUE WAS, IN ITS VIEW, GUIDED MORE BY ADMINISTRATIVE CONVENIENCE, AND WHIC H WOULD THOUGH IMPLY DEDUCTION OF TAX EVEN ON PAYMENTS QUA WHICH THERE WAS NO TERRITORIAL NEXUS WITH INDIA OR OTHERWISE WERE NOT CHARGEABLE TO TAX IN INDIA. ADMINISTRATIVE CONSIDERATIONS COULD NOT BE THE BASIS OF THE INTERPRETATION OF THE STATUTORY PROVISIONS, EVEN AS THE LAW CONTEMPLATES ADEQUATE SAFEGUARDS IN THE FORM OF SECTION 40(A)(I) AND SECT ION 195(6); THE LATTER BEING INSERTED ON THE STATUTE BY FINANCE ACT, 2008 W.E.F. 01.04.2008. THE HONBLE COURT ALSO EXPLAINED THE DECISION IN THE CASE OF TRANSMISSION CORPN. OF A.P. LTD. (SUPRA). SECTION 195 CONTEMPLATES DEDUCTION OF TAX AT SOURCE NOT ONLY ON AMOUNTS, WHOLE OF WHICH ARE PURE INCOME PAYMENTS, BUT ALSO COVERS PAYMENTS WHICH HAV E AN ELEMENT OF INCOME IMBEDDED OR INCORPORATED THEREIN. WHERE, THEREFORE, THE PAYE R ENTERTAINS A DOUBT AS TO THE AMOUNT ON WHICH THE TAX IS TO BE DEDUCTED OR OTHERWISE CON SIDERS THAT THE SAME IS NOT DEDUCTIBLE ON THE GROSS AMOUNT ON THE FOOTING THAT ONLY A PART THEREOF REPRESENTED INCOME CHARGEABLE TO TAX IN INDIA, IT WAS NECESSARY FOR HIM TO APPROA CH THE A.O. U/S.195(2) AND OBTAIN PERMISSION FOR DEDUCTION AT SOURCE OF TAX AT A LESS ER AMOUNT. SECTION 195(2), THUS, GETS ATTRACTED ONLY IN CASE OF COMPOSITE PAYMENTS, A PAR T OF WHICH HAVE AN ELEMENT OF INCOME CHARGEABLE TO TAX IN INDIA. THE OBSERVATIONS BY IT IN TRANSMISSION CORPN. OF A.P. LTD. (SUPRA) THAT IF NO SUCH APPLICATION WAS FILED, INCO ME TAX ON SUCH SUM WAS TO BE DEDUCTED AND THAT IT WAS THE STATUTORY OBLIGATION OF THE PER SON RESPONSIBLE FOR PAYING THIS SUM TO 5 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR DEDUCT INCOME TAX THEREON BEFORE MAKING THE PAYMENT , IT WAS EXPLAINED, WERE MADE IN THAT CONTEXT. IN OUR VIEW TOO, THE SAID DECISION BY THE APEX COUR T, WHICH WE FIND TO BE IN CONSONANCE WITH THE DECISIONS RENDERED EARLIER, AS IN CIT VS. COOPER ENGINEERING LTD. [1968] 68 ITR 457 (BOM); CIT VS. ELI LILLY & CO. (INDIA) (P.) LTD. [2009] 312 ITR 225 (SC); VIJAY SHIP BREAKING CORPN. VS. CIT [2009] 314 ITR 309 (SC) AND, RATHER TRANSMISSION CORPN. OF A.P. LTD. (SUPRA) AS WELL, SQUARELY COVERS THE FACTS OF THE I NSTANT CASE. THE REVENUE, TO ENABLE US TO DISTURB THE LIKE FINDING BY THE LD. CIT(A), OUGHT TO HAVE EXPLAINED AS TO HOW IT IS INFIRM OR DOES NOT A MOUNT TO A CORRECT READING OF THE SAID DECISION, OR IS OTHERWISE NOT APPLICABLE IN THE FAC TS OF THE CASE. IN FACT, THE ASSESSEE HAVING ADMITTEDLY NEITHER DEDUCTED TAX AT SOURCE NO R MADE ANY APPLICATION U/S.195(2) TO THE A.O., ON THE FOOTING THAT NO PART OF THE RELEVA NT PAYMENT REPRESENTS INCOME CHARGEABLE TO TAX IN INDIA, THE REVENUE OUGHT TO, I N OUR VIEW, HAVE IMPUGNED THE SAID BASIS, ON WHICH THE ASSESSEES CASE RESTS. AND WHICH IT HAS FAILED TO IN ANY MANNER . IF, AS MAINTAINED THROUGHOUT BY THE ASSESSEE, NO PART OF T HE SERVICES, FOR WHICH PAYMENT HAS BEEN MADE, STAND RENDERED IN INDIA, HOW WE WONDER C OULD HE BE FAULTED IN HOLDING IT TO BE NOT CHARGEABLE TO TAX IN INDIA. THIS IN FACT IS ALSO THE REQUIREMENT AND AN ESSENTIAL INGREDIENT OF S. 40(A)(I), SO THAT THE A.O., INVOKI NG THE SAME, IS IN FACT OBLIGED IN LAW TO RENDER A FINDING AS TO THE CHARGEABILITY OF THE IMP UGNED SUM TO TAX UNDER THE ACT, WHICH IS ABSENT IN THE INSTANT CASE. WE ARE CONSCIOUS THAT EXPLANATION 2 TO SECTION 195(1) HAS SINCE BEEN CO-OPTED ON THE STATUTE, I.E., BY FINANCE ACT, 2012 W.E.F. 01.0 4.1962 , AND WHICH READS AS UNDER: OTHER SUMS. 195 . (1) . EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB- SECTION (1) AND TO M AKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWA YS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSO N HAS ( I ) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CON NECTION IN INDIA; OR 6 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR ( II ) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN I NDIA. THE SAME, HOWEVER, IN OUR VIEW, WOULD NOT OPERATE T O DISTURB THE LAW AS ENUNCIATED IN GE INDIA TECHNOLOGY (SUPRA), EXCEPT WHERE THE BASIS OF THE PAYERS BEL IEF, I.E., AS TO THE NON-CHARGEABILITY OF THE PAYMENT TO TAX IN INDIA, IS ON THE GROUND THAT THE PAYEE HAS NO PLACE OF BUSINESS OR BUSINESS CONNECTI ON OR OTHERWISE ANY PRESENCE WHATSOEVER IN INDIA. IN THE PRESENT CASE, THE EDIFI CE OF THE ASSESSEES CASE IS THE RENDERING OF THE SERVICES OUTSIDE INDIA. THEREFORE, THOUGH FO R A CONSIDERATION FOR MARKETING AND SALE SUPPORT SERVICES AND, THUS, ONLY IN THE NATURE OF C OMMISSION OR SERVICE CHARGES, THE SAME HAS NO NEXUS WITH INDIA. ALL THAT, IN OUR CLEAR VIE W, THE SAID EXPLANATION DOES IS TO REMOVE THE ISSUE OF THE DETERMINATION OF THE TAX IN CIDENCE ON THE BASIS OF WHETHER THE PAYEE IS A TAX RESIDENT IN INDIA FROM BEING A CONSI DERATION FOR NON-DEDUCTION OF TAX AT SOURCE U/S.195. THE PAYEE IN THE INSTANT CASE, BEIN G ADMITTEDLY A RESIDENT OF CANADA, WITH THE SERVICES BEING RENDERED THEREAT, THE ISSUE OF P LACE OF BUSINESS IN INDIA IS NOT AN ISSUE. THE ASSESSEES STATING OF THE PAYEE HAVING NO PLACE OF BUSINESS OR ESTABLISHMENT IN INDIA, IS ONLY TOWARD AND IN SUPPORT OF ITS CONTENTION OF THE SERVICES BEING RENDERED WHOLLY OUTSIDE INDIA. THERE IS IN FACT NO CHARGE BY THE RE VENUE OF THE PAYEE HAVING ANY PLACE OF BUSINESS OR OTHERWISE BUSINESS CONNECTION IN INDIA. THE SAID EXPLANATION WOULD, THEREFORE, BE OF NO CONSEQUENCE. WE DECIDE ACCORDIN GLY. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 1/+2 ) % 1 % + 3 ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 21, 2014 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' 4* MUMBAI; 5( DATED : 21.11.2014 ).(. ./ ROSHANI , SR. PS 7 ITA NO. 4522/MUM/2013 (A.Y. 2009-10) ASST. CIT VS. VILAS N. TAMHANKAR !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 6+ ( ) / THE CIT(A) 4. ' 6+ / CIT - CONCERNED 5. 9): #+(; , , ;/ , ' 4* / DR, ITAT, MUMBAI 6. => ?* / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ' 4* / ITAT, MUMBAI