ACIT, CHENNAI V. Comex Exports Pvt. Ltd., CHENNAI

ITA 478/CHNY/2013

• Counselvise Citation: 47821714 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM IRS
• Assessee Lawyers: S SRIDHAR
• Section: 143(3); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . . , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NO.478/MDS/2013 ( / ASSESSMENT YEAR : 2009-2010) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI 600 034. ( #$ /APPELLANT) VS M/S. COMEX EXPORTS PVT LTD, NO.286, THIRUVOTTIYUR HIGH ROAD, CHENNAI 600 021. [PAN:AABCC1301N] ( %&#$ /RESPONDENT) / APPELLANT BY : SHRI. GURU BHASHYAM, IRS, JCIT / RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE /DATE OF HEARING : 15.04.2014 ! /DATE OF PRONOUNCEMENT : 25.04.2014 ' / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2009-10; ARISES FROM ORDER OF THE COMMISSIONER OF INCOME TAX (APPEA LS)-IX, CHENNAI DATED 28.12.2012, PASSED IN ITA NO.276/11-12, IN PR OCEEDINGS UNDER I.T.A.NO.478/MDS/2013 :- 2 -: SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT] DELETING DISALLOWANCE UNDER SECTION 40 (A)(I) OF G58,80,824/ - MADE BY THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 19.12.2 011. 2. THE ASSESSEE; A PRIVATE LIMITED COMPANY, MANUFACTUR ES AND EXPORTS LEATHER GARMENTS. ON 30.09.2009, IT HAD FI LED ITS RETURN DECLARING INCOME OF G53,38,033/-. IN SCRUTINY, TH E ASSESSING OFFICER NOTICED THE ASSESSEE TO HAVE INCU RRED EXPENDITURE TOWARDS COMMISSION PAID TO NON-RESIDENTS AMOUNTING TO G58,80,824/-. HE DISALLOWED THE SAME; INTER-ALIA, BY OBSERVING TH AT SECTION 9 OF THE ACT APPLIED IN THIS CASE AS THE COMMISSION AMOUNT H AD ACCRUED TO A NON-RESIDENT/ PAYEE PRINCIPALLY ON ACCOUNT OF A BUS INESS ACTIVITY IN INDIA WHICH REQUIRED TDS DEDUCTION. THE ASSESSING OFFICER FURTHER HELD THAT THE CERTIFICATE UNDER SECTION 195(2) OF T HE ACT HAD ALSO NOT BEEN PRODUCED. ACCORDINGLY, HE DISALLOWED/ADDED TH IS SUM OF G 58,80,824/- IN ASSESSEES INCOME. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL. THE CI T(A) HAS ACCEPTED ITS CONTENTIONS OBSERVING AS UNDER:- 5. I HAVE CONSIDERED TH E ASSESSMENT ORDER, GROUNDS O F AP PEAL AN D TH E W R IT TEN S U B MISSIO N S FI L ED BY THE AR OF TH E APPELLAN T . WHILE MAKIN G T H E D I SA L L OW A NCE , THE AO OBSERVED IN THE I.T.A.NO.478/MDS/2013 :- 3 -: ASSESSMEN T OR D E R AS U ND E R :- 'ON VER I FICATION OF T HE P /L A CCOUN T , I T I S SEEN THA T T H E ASSES S E E HA S INCU RRED AN EXPENDITURE TOWARDS COM M ISSION P AID TO NON -RES I DE N T S A M OUN T I N G TO RS .5 8,80,8241-. NO W I TH H OLDING T A X W A S D EDUCTED ON , I T AS ACC OR DIN G TO T H E ASSESSEE, CIRCULAR NO . 786 O F CBDT APPROVED T HE ACT OF ', NON - COM P LI A NC E BY T HE AS S ESSEE. THE ASSESSEE HAD FAILED TO DEDUCT TDS ON THI S P AYME NT ON T H E P RE TEX T I THAT THE TRANSACTIONS ARE T REATED UNDER EXEMPTED CATEGORY , VI DE C I R CULAR N O. 7 8 6 OF 2000 WHICH EXEMPLIFIED T HE CO R RECTNESS OF THE CONTENTS AND I N T ENT I ON PRO N O UNCED IN CIRCULAR NO.23 OF 1 969 ., H OWEVER, CIRCU L AR NO . 7/2009 : DATED 22 - 10- 2 00 9 HAD MAD E BOTH CIRCULAR NO . 2 3 DATED 23-07-1969 AND C I RCULAR N O . 786 DATED 0 7- 02 - 2000 REDUNDANT AND I NAP P LICABLE ON I TS WITHDRAWA L VIDE CIRC U L AR NO . 7 /2 009 BY THE CENTRAL BOARD OF DIRECT T AXES . THE COMMISSION INCOME UND E R CO NS I DE R A TIO N , IN THE AB S ENCE OF THE IMMUNI T Y GRANTED VIDE CIRC U LAR N023 D A T ED 2 3 - 07 -1 96 9 I S THER E FORE, GOVERNED BY SEC. 9 OF IT ACT, 1961 REGARDING TAXABILI T Y O F INCOM E W H IC H IS D E EMED TO ACCRUE OR ARISE IN INDIA B E CAUSE OF ITS BUSINES S CONNECT ION IN INDIA. TIL E SOURCE OF INCOME E MANATES PRINCIPALLY ON ACCOUNT O F T H E BUS INE SS AC TIV ITY CONDUCTED BY THE ASSESSEE IN I NDIA AND SINCE WITHHOLD ING T A X H AS N OT B EEN D E DUCTED AND REMITTE D TO TH E GOVERNMEN T O F INDIA ACCOU N T, TH IS AMOU N T OF RS. 5 8 ,80,824!- IS ADDED TO TH E T AXABLE INCOME OF THE ASSESS EE F O R THE YE AR O N ITS DIS A LLOWANCE U/S , 40(A)(I) . 3 .2 A L TERNATIVELY, THE ASSESSE E O UG H T TO P RODUCE, TA X RESIDE NCY C ER T I FI C A TE O F THE COMMISSION AGENT, UNDERTAKING F ROM T H E COMMISSION AGE N T T HA T T H E RE I S NOT P E RMANENT ESTABLISHMEN T I N I NDIA OR A CER T IFICATE ' U/S. 195( 2) T O S UBS TAN T I A TE THAT T H E C OMMISSION PAID SHALL NO T B E CHARGEABLE UNDER THE AC T IN TH E HA N D S O F T HE NOR RESIDENT TO GAIN IMMUNITY FRO M THE IMPOSI T ION O F THE PROVISION S OF S E C TIO N 4 0 (A )( I), HOW E VER, SINCE THESE DOCUM E N TS H AV E N OT B E E N PRODUCE D , THE BUSI N E S S P RO FITS OF THE NON - RESIDENT IN T HE FORM O F COMMI SS ION REMAINS TAXABL E I N IND I A. S INCE TAX HAS N OT BE EN DEDUC T E D O N SUCH INCOME, T H E EXPE N D ITUR E O F 5 8,80,824/- IS DISALLOWED U / S. 4 0( A ) (I) AND ADDED B A CK T O THE T AXABLE I NCOME O F T H E A S SESSEE.' 5.1 T H E APPEL L AN T A L S O S UBMITTED V ARIOUS JU D I C I A L P RONO UNCEMENTS MADE IN T HI S R E GARD . I AM OF THE CON SIDERED O PI N ION THAT T HE AO IS N OT JUSTIFIED IN IN MAKING THE AB OVE DISALLOWANCE F O R THE F O LLO W ING REAS O NS : A) THE AO HAS APP L I ED SE C 9 O F THE AC T AND HE L D THAT TH E SITUS OF THE PAYER AND T HE SI T US OF THE U TILIZA T ION O F T HE SERVICES WHICH DETERMINE THE TAXABIL I TY O F THE SUCH SERVICES IN I NDIA IS NO T RE L EVAN T AS LONG AS THE SERVICES 9RE UTI LI Z E D I N INDIA AN D THEREBY INVOKED T HE PROV I SIONS U/S 4 0(A)(IA) OF THE I . T . A C T . THE APPELLANT COMPANY H AS P AID COMMISSION T O IT S OVERSEAS AGENT F OR THE PU R PO S E OF PRO C URING ORD E RS ABROAD WHIC H I S IN THE N A T U R E OF COMMI S SION PAYMEN T . . AS THE SERVICES ARE RENDERED OU T SIDE I NDIA T H E PR OVISIO N S O F SEC T ION 5 CANNO T B E 1 ACCEPTED TO THE C OMMISSIO N PAI D SO A S TO MAKE IT TA X AB L E I N I ND I A . F U R T H E R, ' IN O RDER TO ATTRACT S E C T ION 1 95, TH E SER V ICE S BY TH E N O N R ESI D E NT AGEN T SHOULD HAV E BEEN REND E R E D IN I N DIA AND A L SO SHOU LD HAV E B EE N U SED I N I ND I A. I T IS TO BE POI NTED OUT THAT SECTION 1 9 5 O F T HE AC T HAS T O BE R E AD AL O N G W I T H T HE C HA RGING SECTIONS 4 , 5 AND 9 OF THE ACT AND T HE PROVISIONS OF T H E TA X TR EA T IES AND THE COMBINED READIN G OF THE AFORESAID SECTIONS C L EARLY INDICATE THA T UN L ESS T HE INCOME IS CHARGEABLE T O TAX IN INDIA , THERE IS NO OBLIGATION T O W IT HHO LD THE TAX. I.T.A.NO.478/MDS/2013 :- 4 -: B) TH E AO HA S V IEWED THA T BO ARD 'S C I RCULA R S 2 3 OF 1969 AND 786 D A T E D 7 . 2 . 2000 HAVE B EEN WIT HDR AWN AN D THE R E F ORE IT CANNO T B E RELIED UPON FURTHER. T H E AO'S VIEW IS NO T ACCEP TABL E A S TH E L AW R ELATED TO WITHHO L DI NG OF TAX U / S 195 OF . T H E A CT HAS NO T BEEN CHAN GED E V EN A FTE R WI T HD RAW A L O F THE ABO VE CIRCUL A RS IS S UED BY THE CBDT. C) ON SIMI L AR AN D I DEN T ICAL I SS UE, H ON ' BLE ITA T , HYD E RABAD IN THE ` CASE O F DCIT VS. D I VI'S L A B ORA TORI ES ( 1 2 TAX MAN 103) AND TH E HON'BLE DELHI HIGH COU RT IN T HE CASE O F CIT VS. EON TE C H NOLO GY P VT . L T D . (15 TAXM AN 391) HAVE HELD T HA T . THE MARKE T IN G F EE I CO MMI SS I O N I NCO ME COUL D NOT BE SAI D T O HAVE ACCRUED TO T H E NON RES I DEN T S IN I N D I A AND HEN C E T H E A PPELLANT IS HO T LIA BL E TO DEDUCT TAX AT SOURCE FROM PAYMENT OF CO MMI SS I O N TO NO N R E S IDENT AGEN T . D ) TH E H O N'BLE SUPREME C OUR T IN THE C AS E O F GE T E CH N OLOG I CAL CEN TRE (P) LT D VS CIT (327 I TR 4 5 6) H AS HE LD T HA T IF TH E A M OUN T IS NOT TAXABLE UNDE R THE ACT, T HE QU E STIO N O F DED UC TI 6 N O F TAX D O E S NOT ARISE A N D C ONSEQUENTIALLY NO DISALL O W ANCE O F EX P EN D I TUR E W A S WA RR AN T ED. F U R THER T H E HON B L E JURISDICT I ONAL ITA T IN TH E CAS E OF W H EELS I ND I A LT D F OR T HE AY 2005 - 06 IN ITA N O . 2 5 0 / MDS / 201 0 DATED 1 6/1 2/ 2 010 AND IN ITA NO . 1 63/MDS/2012 DA T ED 27/07/201 2 ' FO R THE AY 2003 - 0 4 H A D HEL D THIS ISSU E I N FA V OUR OF TH E A PPE LLA N T . 6 . 2 S I NCE T H E F ACTS O F THE APPELLANT CA SE ARE SI M I L AR T O THAT OF THE C A S ES ME N T I O N ED SUP R A , RES P EC TFULLY F O LL O WI N G T H E D EC IS I O NS I N T H E ABOVE CASES , I AM OF T H E O P I N ION T H AT THE COM M IS SI ONS R E C EIVED B Y T H E NON R ESID E NT AGENT CANNOT BE SAI D TO H A VE ACCRUED OR AR I SEN T O THE PA Y EE I N INDI A AND T H EREFORE THE APPELLAN T CO MP A NY I S NOT UNDER OBLI G A T ION F OR WITHHOL D ING OF T A X U/S 1~.5 ON THE ABOVESA ID AM O UNT OF RS. 58,80,82 4 /- . THER E FORE THE AO IS NOT JUS TIFIED IN MAKING T HE DISALLOWA N C E OF RS. 58, 8 . 0 ,824 / - U/S 4 0(A)(I) OF THE ACT AND HENCE THE ASSESSING OFFICER IS DIRECTE D T O DELETE T HE ADDI T IO N O F R S . 58 ,8 0,82 4 /- MADE T O T HE RETURNED INCO ME . THIS GR O U ND OF APP EA L IS ALLOWED. THEREFORE, THE REVENUE IS IN APPEAL. 4. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE AND PERUSED THE CASE LAWS QUOTED BY THE ASSESSEE I.E. M /S. EAGLE PRESS (P) I.T.A.NO.478/MDS/2013 :- 5 -: LTD ITA NO.776/MDS/2008 DATED 6.06.2011, M/S. FARI DA SHOES PRIVATE LTD ITA NO.359/MDS/2013 DATED 11.04.2013 AND M/S. P RAKSH IMPEX ITA NO.08/MDS/2012 DATED 2008-09. THE REVENUES ON LY GRIEVANCE IS THAT THE AFORESAID FOREIGN AGENCY COMMISSION PAID B Y THE ASSESSEE TO THE NON RESIDENTS/PAYEE ATTRACTS DISALLOWANCE UNDER SECTION 40 (A)(I) FOR NON DEDUCTION OF TDS. IT IS MADE CLEAR THAT IN SUPPORT OF THIS PLEA, NO COGENT EVIDENCE HAS BEEN PRODUCED BEFORE US. IT TRANSPIRES FROM THE CASE FILE THE ASSESSEE HAS PAID FOREIGN EXCHANG E COMMISSION TO ITS NON-RESIDENT AGENT WHO DO NOT HAVE ANY PERMANENT ES TABLISHMENT IN INDIA. THERE IS NO MATERIAL TO PROVE THAT THESE PA YMENT HAVE ARISEN OUT OF AN AGREEMENT EXECUTED IN INDIA. NOR THERE IS ANY EVIDENCE TO CONCLUDE THAT THE NON-RESIDENT/PAYEE HAS RENDERED A NY TECHNICAL SERVICE TO THE ASSESSEE. THE REVENUE ALSO FAILS TO PROVE THE PAYMENTS TO HAVE BEEN ACCRUED, ARISEN OR PAID IN INDIA SO AS TO MAKE IT TAXABLE UNDER PROVISION OF THE ACT. TAKING INTO CONSIDERATI ON ALL THESE CIRCUMSTANCES AND ALSO THE AFORESAID CASE LAW ECHOI NG THE SAME PRINCIPLE, WE HOLD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS QUA ABOVESTATED COMMISSION PAID TO ITS NON RESIDENT PAY EES. ACCORDINGLY, THE CIT(A)S FINDINGS STAND AFFIRMED. I.T.A.NO.478/MDS/2013 :- 6 -: 5. THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 25TH OF APR IL, 2014, AT CHENNAI. SD/- SD/- ( . ) ( . . ) ! (A.MOHAN ALANKAMONY) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER '# /CHENNAI, $% /DATED:25.04.2014. KV %& '( )( /COPY TO: 1. * APPELLANT 2. / RESPONDENT 3. + ( )/CIT(A) 4. + /CIT 5. (,- . /DR 6. -/ 0 /GF. I.T.A.NO.478/MDS/2013 :- 7 -: