ACIT - 2(3)(1), MUMBAI V. WESTERN OUTDOOR INTERACTIVE P. LTD., MUMBAI

ITA 5262/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6923 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 24-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 115JB

Judgement Text

1 ITA 5262/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.5262/MUM/2016 (ASSESSMENT YEAR: 2013-14) ACIT-2(3)(1), MUMBAI VS M/S WESTERN OUTDOOR INTER ACTIVE PVT LTD, 7 TH FLOOR, NANAVATI MAHALAYA, 18, HOMI MODI STREET, FORT, MUMBAI-23 PAN AAACW0584A APPELLANT RESPONDENT APPELLANT BY SHRI VIRENDRA SINGH RESPONDENT BY SHRI RENU KAPOOR DATE OF HEARING 12-06-2018 DATE OF PRONOUNCEMENT 20-06-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-6, MUMBAI DATED 05-05-2016 AND IT PERTAINS T O AY 2013-14. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. IT FILED ITS E-RETURN OF INCOME FOR AY 2013-14 ON 18.09.2013 DECLARING TOTAL INCOME OF RS.14,31,93,005/-. THE ASSESSEE HAS ALSO SHOWN BOO K PROFIT OF RS.14,47,69,188 U/S 115JB OF THE ACT AND THE CASE W AS SELECTED FOR 2 ITA 5262/MUM/2016 SCRUTINY UNDER CASS AND NOTICES U/S 143(2) AND 142( 1) WERE ISSUED AND DULY SERVED ON THE ASSESSEE. THE ASSESSMENT PROCEE DINGS WERE COMPLETED U/S 143(3) ON 12-01-2016 DETERMINING TOTA L INCOME AT RS.15,81,09,830/- BY MAKING ADDITION OF RS.1,36,88, 992/- ON ACCOUNT OF EXPORT COMMISSION AND RS.12,27,833/- IN RESPECT OF CONTENT AND SOFTWARE DEVELOPMENT EXPENSES U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE AFORESAID ADDITIONS, THE ASSESSEE PREFERRED APP EAL BEFORE CIT(A). 3. BEFORE THE CIT(A), WITH REGARD TO THE ADDITION O N ACCOUNT OF EXPORT COMMISSION OF RS.1,36,88,992/-, THE ASSESSEE SUBMIT TED THAT THE COMMISSION WAS PAID TO THE FOLLOWING FOREIGN PARTIE S, VIZ.: (I) M/S.COSMOS TELECOM PVT. LTD. RS. 40,56 7/- (II) DANIWIRASTRI GONDOWARSITO RS.31,91,0747- (III) LIM GILLJAA RS. 1,93,9227- (IV) M/S.PANASONIC AVIONICS CORPORATION RS.94,24, 047/- (V) THALES AVIONICS INC. RS. 8,39,382/- (VI) TURNER BROADCASTING SYSTEM ASIA PACIFIC INC. R S. 8,85,687/- THE AFORESAID PARTIES WERE FOREIGN COMMISSION AGENT S TO WHOM ASSESSEE HAD PAID COMMISSION FOR PROCUREMENT OF ORD ERS. THE SAID COMMISSION WAS REMITTED DIRECTLY FROM INDIA TO THE OVERSEAS BANK ACCOUNTS OF THE AGENTS. THE ASSESSEE VIDE LETTER DA TED 06.01.2016 SUBMITTED THAT THESE NON-RESIDENT AGENTS OPERATED O UTSIDE INDIA AND THEREFORE NO PART OF THEIR INCOME ARISES DURING THE YEAR IN INDIAN TAX JURISDICTION. REGARDING ALLOWABLY OF COMMISSION PAI D TO FOREIGN PARTIES, THE ASSESSEE VIDE ITS WRITTEN SUBMISSION DATED 11.0 1.2016 POINTED OUT 3 ITA 5262/MUM/2016 THAT LD. CIT(A) HAD GRANTED RELIEF VIDE ORDER DATED 28.10.2015 FOR A.Y.2011-12 AND 2012-13 AND HENCE NO ADDITION SHOUL D BE MADE. HOWEVER, THE DEPARTMENT HAD PREFERRED APPEALS AGAIN ST THE ORDER OF LD CIT(A) BEFORE HON'BLE ITAT, MUMBAI. HENCE TO KEEP T HE ISSUE ALIVE AND TAKING INTO CONSIDERATION THE WRITTEN SUBMISSION OF THE ASSESSEE, FACTS AND CIRCUMSTANCES OF THE CASE, THE AO DISALLOWED AN AMOUNT OF RS.1,36,88,992/- U/S.40(A)(IA) OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD.CIT(A), BY FOLLOWIN G THE EARLIER ORDER PASSED BY HIM ON THE ISSUE, FOR ASSESSMENT YEARS 20 11-12 AND 2012-13 AND ALSO BY FOLLOWING THE JUDGEMENT OF HONBLE MADR AS HIGH COURT IN THE CASE OF CIT VS FARIDA LEATHER COMPANY 66 TAXMANN.C OM 321, DELETED THE ADDITION. 4. WITH REGARD TO THE OTHER ISSUE OF DISALLOWANCE O F RS.12,27,833/- IN RESPECT OF CONTENT AND SOFTWARE DEVELOPMENT EXPENSE S U/S 40(A)(IA), THE LD.CIT(A) OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.15,10,985/- AS CONTENT AND SOFTWARE DEVELOPMENT EXPENSES TO ITS PROFIT AND LOSS ACCOUNT DURING THE YEAR AND HAD DED UCTED TDS ON RS. 11,14,7487-. THE AO ASKED THE ASSESSEE TO EXPLAIN W HY THE BALANCE AMOUNT SHOULD NOT BE DISALLOWED U/S.40(A)(IA) OF TH E ACT. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT HAD NOT DEDUCTED TDS ON PAYMENT OF CONTENT DEVELOPMENT EXPENSES TO THE TUNE OF RS.3,96 ,237/-. WITHOUT 4 ITA 5262/MUM/2016 PREJUDICE TO THE ABOVE AND IN ORDER TO AVOID FURTHE R LITIGATION IN THE MATTER, THE ASSESSEE HAD DEDUCTED TAX ON THE BALANC E AMOUNT OF CONTENT DEVELOPMENT EXPENSES PAID BY IT. IN VIEW OF THE ABO VE, THE AO DISALLOWED A TOTAL AMOUNT OF RS.12,27,833/- U/S.40( A)(IA) OF THE ACT, BEING RS.3,96,237/- AS ABOVE AND RS.8,31,596/- OUT OF AMOUNT PAID TO TURNER BROADCASTING SYSTEM ASIA PACIFIC INC. THE C IT(A), BY FOLLOWING THE EARLIER ORDER PASSED BY HIM ON THE ISSUE, FOR A SSESSMENT YEARS 2011- 12 AND 2012-13, HELD THAT NO DISALLOWANCE IS CALLED FOR U/S 40(A)(IA) IN RESPECT OF CONTENT AND SOFTWARE DEVELOPMENT EXPENSE S. ACCORDINGLY, HE DELETED THE ADDITION. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE T RIBUNAL WITH THE FOLLOWING GROUNDS OF APPEAL:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING THAT NO TDS WAS DEDUCTA BLE ON PAYMENTS MADE TO FOREIGN PARTIES WITHOUT APPRECIATE THE DECISION OF AAR (INCOME TAX) NEW DELHI IN THE CASE OF WALLACE PHARMACEUTICALS (P) LTD, 278 ITR 97. 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE CIRCULAR NO 23 DT. 23.07.1969 & CIRCULAR NO. 786 DT. O7.02.2OOO HAVE B EEN WITHDRAWN BY THE CBDT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN HOLDING NO TDS WAS DEDUCTABLE ON PAYME NTS MADE FOR CONTENT & SOFTWARE DEVELOPMENT EXPENSES WITHOUT APPRECIATING THE FACT THAT THESE PAYMENTS ARE IN THE NATURE OF ROYALTY, 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE DECISION IN THE CA SE OF HIGH COURT OF KARNATAKA IN CASE OF CIT VS. SYNOPSIS INTERNATIONAL OLD LTD (212 TAXMAN 454), MUMBAI TRIBUNAL'S DECISION IN THE CASE OF DDIT(IT) VS. RELIANCE INFOC OM LTD ( 39 TAXMAN CO 14O) AND DECISION OF AAR (IT), NEW D ELHI IN THE CASE OF CITRIX SYSTEMS ASIA PACIFIC PVT. LTD. (AAR NO 822 OF 2009) . 5 ITA 5262/MUM/2016 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL PLACED BEFORE US. WE FIND THAT BOTH THE ISSUES HAVE BEEN CONSIDE RED BY THE THE ITAT, MUMBAI BENCH G FOR AYS 2011-12 AND 2012-13 IN IT A NOS.247 & 248/MUM/2016 IN ORDER DATED 26-02-2018 AND DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE WITH THE FOLLOWING OBSERVATIONS:- 6. IT IS CLEAR FROM THE ORDER OF THE CIT(A) THAT A FTER APPLYING VARIOUS JUDICIAL PRONOUNCEMENTS, HE REACHED TO THE CONCLUSION THAT P AYMENT TO M/S. COLUMBUS TRAVEL MEDIA LTD., AND ZAGAT SURVEY LLC CA NNOT BE TREATED AS ROYALTY U/S.9(1)(VI) OF THE ACT. HENCE, ASSESSES WA S NOT REQUIRED TO DEDUCT TAX U/S.94 OF THE ACT, ACCORDINGLY, NO DISALLOWANCE CAN BE MADE U/S.40(A)(I)OF THE ACT. 7. WITH REGARD TO EXPORT COMMISSION PAID TO THE FOR EIGN AGENTS, THE CIT(A) RECORDED A CLEAR FINDING THAT COMMISSION HAS BEEN P AID FOR PROCURING EXPORT ORDER AND PAYMENT WAS MADE OUTSIDE INDIA. AF TER RELYING ON THE CBDT CIRCULAR NO.23 OF 1969, 786 OF 2000 AND 7 OF 2 009, THE CIT(A) HELD THAT NO TAX IS DEDUCTIBLE IN RESPECT OF SUCH EXPORT COMMISSION. THE CIT(A) ALSO RELIED ON THE DECISIONS OF ITAT DELHI IN CASE OF WELSPRING UNIVERSAL, MADRAS HIGH COURT IN CASE OF FAIZEN SHOES (P) LTD., WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT AND NO SLP HAS BEEN FILE D. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FO R DELETING THE DISALLOWANCE MADE IN RESPECT OF EXPORT COMMISSION PAID TO THE FO REIGN AGENTS. 8. NOTHING WAS BROUGHT ON RECORD BY LEARNED DR TO P ERSUADE US TO DEVIATE FROM THE FINDINGS AND CONCLUSION RECORDED BY CIT(A) . ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CI T(A) FOR DELETING THE DISALLOWANCE MADE BY THE AO. 9. ALL THE FACTS AND CIRCUMSTANCES IN THE A.Y.2012- 13 ARE PARIMATERIA, FOLLOWING REASONING GIVEN HEREINABOVE, WE DO NOT FI ND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE MADE ON ACCOUNT OF PAYMENT MADE TO FOREIGN PARTIES WITHOUT DEDUCTION OF TAX AT SOURCE. CONSISTENT WITH THE EARLIER DECISION OF THE TRIBUNA L, WE REJECT THE GROUNDS RAISED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 6 ITA 5262/MUM/2016 ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUNE, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 20 TH JUNE, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI