ACIT, New Delhi V. Shri Pankaj Jain, New Delhi

ITA 4723/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2748 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 05-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATIQ AHMAD SENIOR
• Assessee Lawyers: ADITYA AGGARWAL
• Keywords: Services rendered outside India

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI L.P. SAHU, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4723/DEL./2016 (ASSESSMENT YEAR : 2011-12) ACIT, CIRCLE 28 (1), VS. SHRI PANKAJ JAIN, NEW DELHI. 36 A, FRIENDS COLONY (EAST), NEW DELHI 110 065. (PAN : AAOPJ8177B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ADITYA AGGARWAL, CA REVENUE BY : SHRI ATIQ AHMAD, SENIOR DR DATE OF HEARING : 26.03.2018 DATE OF ORDER : 27.03.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME TA X, CIRCLE 28 (1), NEW DELHI (HEREINAFTER REFERRED TO A S THE REVENUE) BY FILING THE PRESENT APPEAL, SOUGHT TO SET ASIDE T HE IMPUGNED ORDER DATED 30.06.2016 PASSED BY LD. CIT(APPEALS)-10, NEW DELHI QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER AL IA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.38,07,050/- WHICH WAS MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS ON EXPORT COMMISSION PAID T O ITA NO.4723/DEL./2016 2 NON-RESIDENT AS PER PROVISION OF SECTION 195 OF THE INCOME-TAX ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.38,07,050/- WITHOUT APPRECIATING THE FACT THAT T HE CASE OF THE ASSESSEE CLEARLY FALLS UNDER THE PROVIS IONS OF EXPLANATION-2 TO SECTION 195 OF THE I.T. ACT, 1961, WHICH CLEARLY STATE THAT: EXPLANATION2.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND TO MAKE DEDUCTION THERE-UNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESI DENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RESIDENT PE RSON HAS- (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER I N INDIA. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT TH AT NO DOUBT THE AGENT RENDERED SERVICES ABROAD, HOWEVER, THE RIGHT TO RECEIVE COMMISSION ARISES IN INDIA WHEN TH E ORDER IS EXECUTED BY THE ASSESSEE FROM INDIA. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : DURING THE ASSESSMENT PRO CEEDINGS, ASSESSING OFFICER NOTICED FROM P&L ACCOUNT THAT THE ASSESSEE HAS DEPOSITED AN AMOUNT OF RS.38,07,050/- ON ACCOUNT OF FOREIGN AGENCY COMMISSION PAID WITHOUT DEDUCTING TAX AT SOU RCE ON THE SAME. AO BY INVOKING THE PROVISIONS CONTAINED UNDE R SECTION 195 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) P ROCEEDED TO ITA NO.4723/DEL./2016 3 CONCLUDE THAT THE PAYMENT MADE BY THE ASSESSEE TO T HE NON-RESIDENT INDIAN IS COVERED UNDER SECTION 195 OF THE ACT REQU IRING THE ASSESSEE TO DEDUCT TAX DEDUCTED AT SOURCE (TDS) AND THEREBY MADE AN ADDITION OF RS.38,07,050/-. 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION OF RS. 38,07,050/- BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, THE ASSESSEE HAS PAID EXPORT COMMI SSION TO THE TUNE OF RS.38,07,050/- TO A NON-RESIDENT WITHOU T DEDUCTING THE TDS. IT IS ALSO NOT IN DISPUTE THAT A NON-RESIDENT INDIAN TO WHOM THE EXPORT COMMISSION HAS BEEN GRANTED BY THE ASSES SEE HAS RENDERED SERVICES OUTSIDE THE COUNTRY AND NO PART O F THE INCOME ARISES IN INDIA. IT IS ALSO NOT IN DISPUTE THAT TH E ENTIRE COMMISSION HAS BEEN REMITTED DIRECTLY ABROAD. 6. IDENTICAL ISSUE HAS ALREADY BEEN SET AT REST BY THE HONBLE DELHI HIGH COURT IN CASE CITED AS CIT VS. EON TECHNOLOGY P. LTD. ITA NO.4723/DEL./2016 4 (2012) 343 IT4R 366 (DELHI) IN FAVOUR OF THE ASSESSEE. OPERATING PART OF THE JUDGMENT IS REPRODUCED AS UND ER :- 12. ON THE SAID ASPECT WE MAY REFER TO THE DECISIO N OF THE SUPREME COURT IN C.I.T. VS. TOSHOKU LIMITED, (1980) 125 ITR 525 (SC). THIS CASE RELATES TO THE ASSESSMENT YEAR 1962-63. THE INDIAN ASSESSEE HAD PA ID COMMISSION TO TWO FOREIGN COMPANIES THROUGH WHOM THEY HAD PROCURED EXPORT ORDERS. QUESTIONS AROSE; WHAT WAS THE EFFECT OF THE ENTRIES IN THE BOOKS OF ACCOU NTS OF THE INDIAN ASSESSEE WHICH HAD RESULTED IN DEBIT AND CREDIT ENTRIES ON ACCOUNT OF COMMISSION AND SECONDL Y, WHETHER PROCUREMENT OF EXPORT ORDERS BY THE FOREIGN COMPANIES FOR THE INDIAN COMPANY HAD RESULTED IN A BUSINESS CONNECTION. TWO CONTENTIONS WERE REJECTED BY THE SUPREME COURT INTER-ALIA RECORDING AS UNDER:- IT CANNOT BE SAID THAT THE MAKING OF THE BOOK ENTRIES IN THE BOOKS OF THE STATUTORY AGENT AMOUNTED TO RECEIPT BY THE ASSESSEES WHO WERE NON-RESIDENTS AS THE AMOUNTS SO CREDITED IN THEIR FAVOUR WERE NOT AT THEIR DISPOSAL OR CONTROL. IT IS NOT POSSIBLE TO HOLD THAT THE NON-RESIDENT ASSESSEES IN THIS CASE EITHER RECEIVED OR CAN BE DEEMED TO HAVE RECEIVED THE SUMS IN QUESTION WHEN THEIR ACCOUNTS WITH THE STATUTORY AGENT WERE CREDITED, SINCE A CREDIT BALANCE, WITHOUT MORE, ONLY REPRESENTS A DEBT AND A MERE BOOK ENTRY IN THE DEBTOR'S OWN BOOKS DOES NOT CONSTITUTE PAYMENT WHICH WILL SECURE DISCHARGE FROM THE DEBT. THEY CANNOT, THEREFORE, BE CHARGED TO TAX ON THE BASIS OF RECEIPT OF INCOME ACTUAL OR CONSTRUCTIVE IN THE TAXABLE TERRITORIES DURING THE RELEVANT ACCOUNTING PERIOD.X X X IN THE INSTANT CASE, THE NON-RESIDENT ASSESSEES DID NOT CARRY ON ANY BUSINESS OPERATIONS IN THE TAXABLE TERRITORIES. THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR CAUSED TO BE REMITTED BY THE PURCHASERS FROM ABROAD DOES NOT AMOUNT TO AN OPERATION CARRIED ITA NO.4723/DEL./2016 5 OUT BY THE ASSESSEES IN INDIA AS CONTEMPLATED BY CL. (A) OF THE EXPLANATION TO S. 9(1)(I) OF THE ACT . THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT ASSESSEES FOR SERVICES RENDERED OUTSIDE INDIA CANNOT, THEREFORE, BE DEEMED TO BE INCOMES WHICH HAVE EITHER ACCRUED OR ARISEN IN INDIA. THE HIGH COURT WAS, THEREFORE, RIGHT IN ANSWERING THE QUESTION AGAINST THE DEPARTMENT. 13. THE AFORESAID DECISION IS A COMPLETE ANSWER TO THE CONTENTION RAISED BY THE REVENUE AND AS MENTION ED IN THE ASSESSMENT ORDER THAT COMMISSION INCOME HAD ACCRUED AND ARISEN IN INDIA WHEN CREDIT ENTRIES WER E MADE IN THE BOOKS OF THE RESPONDENT ASSESSEE IN FAV OUR OF THE ETUK AND THE SAID INCOME TOWARDS COMMISSION WAS RECEIVED IN INDIA. AS NOTICED ABOVE, THE STAND OF THE REVENUE IS CONTRARY TO THE TWO CIRCULARS ISSUED BY THE CBDT IN WHICH IT IS CLEARLY HELD THAT WHEN A NON- RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY NO PART OF HIS INCOME ARISES IN INDIA, AND SINCE PAYMENT IS REMITTED DIRECTLY ABROAD, AND MERELY BECAUSE AN ENT RY IN THE BOOKS OF ACCOUNTS IS MADE, IT DOES NOT MEAN THAT THE NON-RESIDENT HAS RECEIVED ANY PAYMENT IN INDIA. THIS FACT ALONE DOES NOT ESTABLISH BUSINESS CONNECT ION. IN CIRCULAR NO. 786 DATED 7 TH FEBRUARY, 2000, IT HAS BEEN STATED THAT IN SUCH CASES, THE INDIAN ASSESSEE IS NOT LIABLE TO DEDUCT TDS UNDER SECTION 195 OF THE ACT F ROM THE COMMISSION AND OTHER RELATED CHARGES PAYABLE TO SUCH A NON-RESIDENT HAVING RENDERED SERVICE OUTSIDE INDIA. 14. THE TERM BUSINESS CONNECTION HAS BEEN INTERPRETED BY THE SUPREME COURT TO MEAN SOMETHING MORE THAN MERE BUSINESS AND IS NOT EQUIVALENT TO CARRYING ON BUSINESS, BUT A RELATIONSHIP BETWEEN TH E BUSINESS CARRIED ON BY A NON-RESIDENT, WHICH YIELDS PROFITS AND GAINS AND SOME ACTIVITIES IN INDIA, WHI CH CONTRIBUTES DIRECTLY OR INDIRECTLY TO THE EARNING O F THOSE PROFITS OR GAINS. IT PREDICATES AN ELEMENT OF CONTI NUITY BETWEEN THE BUSINESS OF THE NON-RESIDENT AND THE ACTIVITY IN INDIA [CIT VS. R.D. AGGARWAL AND COMPANY(1965) 56 ITR 20 (SC), CARBORANDUM & CO. VS. CIT(1977) 2 SCC 862 AND ISHIKAWAJMA-HARIMA ITA NO.4723/DEL./2016 6 HEAVY INDUSTRIES LTD. VS. DIRECTOR OF INCOME TAX, MUMBAI(2007) 3 SCC 481]. THE TEST WHICH IS TO BE APPLIED IS TO EXAMINE THE ACTIVITIES IN INDIA AND W HETHER THE SAID ACTIVITIES HAVE CONTRIBUTED TO THE BUSINES S INCOME EARNED BY THE NON-RESIDENT, WHICH HAS ACCRUE D, ARISEN OR RECEIVED OUTSIDE INDIA. THE BUSINESS CONNECTION MUST BE REAL AND INTIMATE FROM WHICH THE INCOME HAD ARISEN DIRECTLY OR INDIRECTLY. THE QUEST ION OF BUSINESS CONNECTION, THEREFORE, HAS TO BE DECIDED O N FACTS FOUND BY ASSESSING OFFICER (OR IN THE APPELLA TE PROCEEDINGS). IN THE PRESENT CASE, FACTS FOUND BY T HE ASSESSING OFFICER DO NOT MAKE OUT A CASE OF BUSINES S CONNECTION AS STIPULATED IN SECTION 9(1) (I) OF THE ACT. THERE IS HARDLY ANY FACTUAL DISCUSSION ON THE SAID ASPECT BY THE ASSESSING OFFICER. HE HAS NOT MADE AN Y FOUNDATION OR BASIS FOR HOLDING THAT THERE WAS BUSI NESS CONNECTION AND, THEREFORE, SECTION 9(1)(I) OF THE A CT IS APPLICABLE. APPELLATE AUTHORITIES, ON THE BASIS OF MATERIAL ON RECORD, HAVE RIGHTLY HELD THAT BUSINES S CONNECTION IS NOT ESTABLISHED. 15. THE SCOPE AND AMBIT OF SECTION 195 OF THE ACT HAS BEEN EXPLAINED BY THE SUPREME COURT IN GE INDIA TECHONOLOGY CENTRE (P) LTD. VS. CIT (2010) 327 ITR 456. IN THE SAID CASE THE EXPRESSION ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SECT ION 195 OF THE ACT WAS ELUCIDATED AND EXPLAINED. IT WAS HELD THAT IF PAYMENT IS MADE IN RESPECT OF THE AMOUNT WH ICH IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF AC T, TAX AT SOURCE (TDS, FOR SHORT) IS NOT LIABLE TO BE DEDU CTED. DECISION OF SUPREME COURT IN TRANSMISSION CORPORATION OF ANDHRA PRADESH VS. CIT, (1999) 239 ITR 587 (SC), OPERATES AND IS APPLICABLE WHEN THE S UM OR PAYMENT IS CHARGEABLE TO TAX UNDER THE PROVISION S OF THE ACT. IN SUCH CASES, TDS HAS TO BE DEDUCTED ON T HE GROSS AMOUNT OF PAYMENT MADE AND NOT MERELY ON THE TAXABLE INCOME INCLUDED IN THE GROSS AMOUNT. THE SA ID DECISION WOULD NOT APPLY IN CASE PAYMENT IS MADE BU T THE SAID SUM IN ENTIRETY IS NOT CHARGEABLE OR EXIGI BLE TO TAX UNDER THE PROVISIONS OF THE ACT. THE SAID DISTI NCTION HAS BEEN RIGHTLY UNDERSTOOD BY THE FIRST APPELLATE AUTHORITY AND THE ITAT AND CORRECTLY APPLIED BY THE M. ITA NO.4723/DEL./2016 7 7. IN VIEW OF THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN EON TECHNOLOGY P. LTD. (SUPRA) ON THE BASIS OF DECISION RENDERED BY HONBLE SUPREME COURT IN CASE CITED AS CIT VS. TOSHOKU LIMITED (1980) 125 ITR 525 (SC) , WE ARE OF THE CONSIDERED VIEW THAT WHEN IT IS NOT IN DISPUTE THAT THE COMMISSION PAYMENT ON EXPORT HAS BEEN MADE TO A NON-RESIDENT I NDIAN BY THE ASSESSEE FOR SERVICES RENDERED ABROAD AND NO PART O F SAID INCOME HAS ARISEN IN INDIA, TDS WAS NOT REQUIRED TO BE DED UCTIBLE AT SOURCE AND DISALLOWANCE U/S 40(A)(I) IS NOT SUSTAINABLE IN THE EYES OF LAW. HENCE, WE FIND NO ILLEGALITY OR PERVERSITY IN THE I MPUGNED ORDER PASSED BY LD. CIT (A). CONSEQUENTLY, THE APPEAL FI LED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 27 TH DAY OF MARCH, 2018. SD/- SD/- (L.P. SAHU) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 27 TH DAY OF MARCH, 2018 TS ITA NO.4723/DEL./2016 8 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-10, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.