ELVE CORPORATION, MUMBAI V. DCIT CIRACIT 12(3), MUMBAI

ITA 4648/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62259 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 09-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: N C NANIWADEKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN( J.M) ITA NO. 4648/MUM/11(A.Y.2007-08) M/S. ELVE CORPORATION, ELVE CHAMBERS, GREET STREET, FORT, MUMBAI 400 001. PAN: AAAFE 4847R (APPELLANT) VS. THE ACIT 12(3), AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (RESPONDENT) APPELLANT BY : SHRI N.C.NANIWADEKAR RESPONDENT BY : SHRI B.JAYA KUMAR DATE OF HEARING : 17/04/2012 DATE OF PRONOUNCEMENT : 25/04/2012 ORDER PER N.V.VASUDEVAN, J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 31/3/2011 OF CIT(A) 23, MUMBAI RELATING TO ASSESSMENT YEAR 20 07-08. THE GROUND OF APPEAL RAISED BY THE ASSESSEE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF FREIGHT OF RS. 2,38, 07,595/- PAID TO NON RESIDENT SHIPPING COMPANIES OR THEIR AGENTS UNDER S ECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT NO SERVICES WERE RENDERED IN INDIA AND SINCE NO INCOME ACCRUED OR AROSE IN INDIA, THE PAYMENT OF FR EIGHT WAS NOT COVERED BY SECTION 195 AND WAS NOT LIABLE FOR DEDUC TION OF TAX AT SOURCE U/S. 195 OF THE INCOME TAX ACT, 1961. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION OF RS. 83 ,06,053/- PAID TO ITA NO. 4648/MUM/11(A.Y.2007-08) 2 OVERSEAS AGENTS UNDER SECTION 40(A)(IA) OF THE INCO ME TAX ACT, 1961 TREATING IT AS FEES FOR TECHNICAL SERVICES. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT NO SERVICES WERE RENDERED IN INDIA AND SINCE NO INCOME ACCRUED OR AROSE TO THE NON RESIDENT AGENTS IN INDIA, THE PAYMENT OF COMMISSION WAS NOT COVERED BY SECTION 19 5 AND WAS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S. 195 OF T HE INCOME TAX ACT, 1961. 2. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF ENGINEERING GOODS. THE A SSESSEE IS ENGAGED EXCLUSIVELY IN THE BUSINESS OF EXPORT. IN THE COUR SE OF ITS BUSINESS DURING THE YEAR THE ASSESSEE INCURRED EXPENDITURE TOWARDS OCEAN FREIGHT AMOUNTING TO RS.2,38,07,595/-. ACCORDING TO THE ASSESSEE, TH E EXPENDITURE WAS TOWARDS OCEAN FREIGHT FROM INDIAN PORT TO OVERSEAS DESTINATION PORT. THE EXPENDITURE WAS IN RESPECT OF SERVICES RENDERED BY FOREIGN SHIPPING COMPANIES OUTSIDE INDIA AND THEREFORE NO INCOME ACC RUED OR AROSE TO THE PAYEE IN INDIA AND ACCORDINGLY NO TAX WAS DEDUCTED WHITE REMITTING THE SAME. THE ASSESSING OFFICER HOWEVER HELD THAT T HE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF THESE PAYMENTS . HE THEREFORE DISALLOWED THE ENTIRE FREIGHT EXPENSES U/S. 40A(I) OF THE INCO ME TAX ACT, 1961 ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX IN RE SPECT OF THESE PAYMENT MADE. 3. IN COURSE OF ITS BUSINESS DURING YEAR THE ASSES SEE INCURRED EXPENDITURE TOWARDS COMMISSION OF RS. 83,06,053/-. THE EXPENDIT URE WAS TOWARDS PAYMENTS MADE TO NON RESIDENTS WHO RENDERED SERVICE S IN CONNECTION WITH EXPORTS MADE BY THE ASSESSEE. ACCORDING TO THE ASS ESSEE, THE EXPENDITURE WAS IN RESPECT OF SERVICES RENDERED BY FOREIGN AGEN TS OUTSIDE INDIA. NO INCOME ACCRUED OR AROSE TO THE PAYEE IN INDIA AND A CCORDINGLY NO TAX WAS DEDUCTED WHILE REMITTING THE SAME. THE ASSESSIN G OFFICER HOWEVER THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN RE SPECT OF THESE PAYMENTS. ITA NO. 4648/MUM/11(A.Y.2007-08) 3 THE A.O, THEREFORE DISALLOWED THE ENTIRE COMMISSIO N U/S. 40A(I) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TA X IN RESPECT OF THESE PAYMENTS. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING OF THIS APPEAL LD. COUNS EL FOR THE ASSESSEE SUBMITTED BEFORE US THAT AS ON THE LAST DATE OF TH E PREVIOUS YEAR THE FREIGHT CHARGES AS WELL AS COMMISSION DID NOT REMAIN PAYABL E AND HAD ALREADY BEEN PAID. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR AT TENTION TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT, VISAKHAPATNAM BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADCIT IN ITA NO.477/VIZ/2 008 A.Y 2005-06 , ORDER DATED 29/3/2012. THE SPECIAL BENCH OF THE TRIBUNAL IN THE AFORESAID DECISION BY A MAJORITY EXPRESSED THE VIEW THAT TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ARE APPLICABLE ONLY TO THE AMO UNTS OF EXPENDITURE WHICH ARE PAYABLE AS ON THE DATE 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAD BEEN ACTUALLY PAI D DURING THE PREVIOUS YEAR, WITHOUT DEDUCTIONS OF TDS. THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE FACTUM OF ACTUAL PAYMENT CAN BE VERIFIED BY THE AO AND SUBJECT TO THAT DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE IN COME TAX ACT,1961(THE ACT) CAN BE DELETED, IF THE AO FIND THAT THE PAYMENT HAV E ALREADY BEEN MADE TO THE NON-RESIDENTS ON OR BEFORE THE LAST DATE OF TH E PREVIOUS YEAR. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT EVEN O N MERIT THE ADDITION CANNOT BE SUSTAINED AND IN THIS REGARD RELIED ON CE RTAIN DECISIONS OF THE TRIBUNAL IN WHICH IT HAS BEEN HELD THAT PAYMENT OF FREIGHT CHARGES TO AGENTS OF FOREIGN SHIPPING COMPANY ARE NOT CHARGEABLE IN I NDIA AND, THEREFORE, THERE IS NO OBLIGATION TO DEDUCT TAX AT SOURCE. THE LD. COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT THE DECISION OF THE HONBLE BOMBAY HIGH ITA NO. 4648/MUM/11(A.Y.2007-08) 4 COURT IN THE CASE OF CIT VS. ORIENTAL (GOA) PVT. L TD., 325 ITR 554(BOM) RELIED UPON BY THE REVENUES AUTHORITIES ARE DISTINGUISHABL E AND NOT APPLICABLE TO THE PRESENT CASE. IN RESPECT OF THE PAYMENT OF C OMMISSION ALSO SIMILAR SUBMISSIONS WERE MADE. THE LD. D.R RELIED ON THE O RDERS OF REVENUE AUTHORITIES. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE VIEW THAT THE PRAYER OF THE ASSESSEE BASED ON THE DECISION OF TH E SPECIAL BENCH OF ITAT VISHAKAPATNAM IN THE CASE OF MERILYN SHIPPING (SUPR A) DESERVES TO BE ACCEPTED. IF ON EXAMINATION BY THE AO IT IS FOUND THAT THE AMOUNTS WHICH WERE CLAIMED AS EXPENDITURE AND DISALLOWED BY THE A O INVOKING THE PROVISIONS OF SECTION 40(A)(IA) HAD BEEN ACTUALLY P AID DURING THE PREVIOUS YEAR WITHOUT DEDUCTION OF TDS AND DID NOT REMAIN PA YABLE AS ON THE 31 ST DAY OF MARCH OF THE PREVIOUS YEAR, THEN NO DISALLOWANC E COULD BE MADE BY THE REVENUE AUTHORITIES. WE THEREFORE, SET ASIDE THE O RDER OF CIT(A) AND REMAND THE ISSUE RAISED BY THE ASSESSEE BEFORE US TO THE A O FOR CONSIDERATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH REFERR ED TO ABOVE. IN VIEW OF THE ABOVE WE DO NOT WISH TO GO INTO THE OTHER SUBMISSIO NS MADE BY THE LD. COUNSEL FOR THE ASSESSEE REGARDING THE JUSTIFICATIO N FOR THE IMPUGNED ADDITION MADE UNDER SECTION 40(A)(IA) OF THE ACT. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF APRIL 2012 SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NO. 4648/MUM/11(A.Y.2007-08) 5 MUMBAI, DATED 25 TH APRIL 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.