ACIT,Circle-46(1), New Delhi V. M/s. Maharani Enterprises, Delhi

ITA 5293/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6228 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 16-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K GUPTA
• Keywords: Services rendered outside India; Non-deduction of tax; TDS
• Section: 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI E BEN CH, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER, AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER, ITA NOS. 5293 & 5294/DEL/2017 [ASSESSMENT YEAR: 2013-14 & 2014-15] ACIT, CIRCLE-46(1), ROOM NO.106, DRUM SHAP BUILDING, NEW DELHI - 110002 M/S MAHARANI ENTERPRISES, 20-A, GADODIA MARKET, KHARI BAOLI, DELHI-110006 PAN - AAMFM4846Q APPELLANT RESPONDENT REVENUE BY SMT. RINKU SINGH ASSESSEE BY SHRI S.K. GUPTA DATE OF HEAR ING 05/08 /2019 DATE OF PRONOUNCEMENT 06 /08 /2019 ORDER PER T. S. KAPOOR, ACCOUNTANT MEMBER, THESE ARE TWO APPEALS FILED BY THE REVENUE PRE FERRED AGAINST THE SEPARATE ORDER OF THE LD. CIT(A)-X16, NEW DELHI , BOTH DATED 16/06/2017, PERTAINING TO ASSESSMENT YEARS 2013-14 & 2014-15. 2. THE REVENUE HAS TAKEN SIMILAR GROUNDS OF APPEAL IN THESE CASES, WHICH WERE HEARD TOGETHER AND FOR THE SAKE OF CONVE NIENCE, THESE ARE BEING DISPOSED OF BY THIS COMMON AND CONSOLIDATED O RDER. FOR THE SAKE OF COMPLETNESS, THE GROUNDS OF APPEAL TAKEN BY THE REV ENUE IN ITA NO.5293/DEL/2017 ARE REPRODUCED HEREUNDER:- 2 ITA NO.5293 & 5294/DEL/20 17 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,13,48,057/- MADE BY THE AO ON ACCOUNT OF NON-DEDUCTION OF TDS U/S 40(A)(IA) OF TH E ACT ON COMMISSION. 3. AT THE OUTSET, THE LD. AR SUBMITTED THAT THESE A RE COVERED CASES IN FAVOUR OF THE ASSESSEE AS ON SIMILAR ISSUE, THE HON BLE ITAT IN THE CASE OF ASSESSEE ITSELF IN AY 2012-13, VIDE ORDER DATED 09/10/2018 HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND IN THIS RESPECT FILED A COPY OF THE ORDER OF THE TRIBUNAL. 4. THE LD. DR FAIRLY ADMITTED THAT THE CASES WERE C OVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL, HOWEVER, SHE PLACED HER RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 5. WE HAVE HEARD RIVAL PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER OF THE TRIBU NAL. THE BRIEF, FACTS OF THE CASE ARE THAT THE ASSESSEE WAS MAKING EXPORT TO VARIOUS PARTIES SITUATED IN GULF COUNTRIES AND THE ASSESSEE HAD MAD E PAYMENTS ON ACCOUNT OF COMMISSION TO MR. SANJAY MEHTA, FOR PROV IDING VARIOUS SERVICES TO THE ASSESSEE. WE FIND THAT DURING THE A SSESSMENT YEAR 2012- 13 ALSO, THE ASSESSEE HAD MADE SIMILAR PAYMENTS TO MR. SANJAY MEHTA AND THE HONBLE ITAT VIDE ORDER DATED 09/10/2018 HA D DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF FOR AY 2011-12. WE FIND THAT THE HONBLE TRIBUNAL HAS 3 ITA NO.5293 & 5294/DEL/20 17 DECIDED THE ISSUE VIDE PARA 7 ONWARDS IN ITA NO.357 5/DEL/2015, WHICH FOR THE SAKE OF COMPLETENESS IS REPRODUCED BELOW:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL ON RECORD. AS FACTS IN THE PRESENT YEAR AR E SIMILAR TO THE FACTS IN EARLIER YEAR DECIDED BY THE CO-ORDINATE BE NCH IN ITA NO. 5806/D/2014 WHEREBY THE TRIBUNAL IN PARAGRAPH 8 HAS RECORDED AS UNDER :- 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE CIT(A) HAS GIVEN A DET AILED FINDING AS TO WHY THE AMOUNT OF RS. 1,19,51,774/- HAS TO BE DELETED. TO A RRIVE AT THIS FINDING, THE CIT(A) HAS TAKEN A COGNIZANCE OF RBIS GUIDELINES A S WELL AS CBDT CIRCULAR. AT THE TIME OF HEARING, IT WAS POINTED OUT BY LD. AR T HAT THE SAID CIRCULAR WAS WITHDRAWN BY THE DEPARTMENT. ALL THESE ASPECTS HAVE BEEN TAKEN INTO CONSIDERATION BY THE CIT(A). BESIDES THIS, THE ISSU E IS ALSO DEALT BY US IN CASE OF DIVYA CREATION WHEREIN WE HAVE HELD AS UNDER:- 19. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER MADE ADDIT ION OF RS. 62,19,609/- U/S 40(A)(I) ON THE GROUND THAT ASSESSEE HAS NOT DEDUCT ED TAX FROM THE FOREIGN AGENCY COMMISSION PAID AS PER THE PROVISIONS OF SEC TION 195 OF THE I. T. ACT. WHILE DOING SO, THE ASSESSING OFFICER RELIED ON THE DECISION OF THE AAR IN THE CASE OF SKF BOILERS AND DRIERS PVT. LTD. (SUPRA) AN D THE DECISION IN THE CASE OF RAJIV MALHOTRA (SUPRA). WE FIND THE ID. CIT(A) WHIL E UPHOLDING THE ACTION OF THE ASSESSING OFFICER HELD THAT INCOME ARISING TO THE A GENT ON ACCOUNT OF EXPORT COMMISSION VERY MUCH FALLS WITHIN THE AMBIT OF PROV ISIONS CONTAINED IN SECTION 5(2)(B) OF THE I.T. ACT AS THE INCOME HAS ACCRUED I N INDIA WHEN THE RIGHT TO RECEIVE THE SAME CAME INTO EXISTENCE. ACCORDING TO HIM ALTHOUGH THE NON- RESIDENT AGENT HAS RENDERED SERVICES AND PROCURED O RDERS ABROAD BUT THE RIGHT TO RECEIVE THE COMMISSION CERTAINLY ARISE IN INDIA WHEN THE ORDER GETS EXECUTED BY THE ASSESSEE. ACCORDING TO HIM, THE MER E FACT THAT THE AGENT IS TO RENDER SERVICES ITA NO. 5603/DEL/2014 ABROAD AND TH E COMMISSION IS TO BE REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR TH E PURPOSE OF DETERMINING THE INCOME SINCE INCOME IS FROM A SOURCE IN INDIA. 20. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF WELSPUN CORPORATION LTD. (S UPRA). THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT THE PAYMENTS MADE BY TH E ASSESSEE FOR SERVICES RENDERED BY NON-RESIDENT AGENTS COULD NOT BE HELD T O BE FEES FOR PAYMENT FOR TECHNICAL SERVICES. THESE PAYMENTS WERE IN NATURE O F COMMISSION EARNED FROM SERVICES RENDERED OUTSIDE INDIA WHICH HAD NO TAX IM PLICATIONS IN INDIA. THE TRIBUNAL WHILE DECIDING THE ISSUE HAS ALSO CONSIDER ED THE TWO DECISIONS OF THE AAR WHICH HAS BEEN RELIED ON BY THE ASSESSING OFFIC ER AS WELL AS THE CIT(A). 4 ITA NO.5293 & 5294/DEL/20 17 21. WE FIND THE ITON'BLE ALLAHABAD HIGH COURT IN TH E CASE OF MODEL EXIMS (SUPRA) HAS HELD THAT FAILURE TO DEDUCT TAX AT SOUR CE FROM PAYMENT TO NONRESIDENT AGENTS, WHO HAS THEIR OWN OFFICES IN FO REIGN COUNTRY, CANNOT BE DISALLOWED, SINCE THE AGREEMENT FOR PROCURING ORDER S DID NOT INVOLVE ANY MANAGERIAL SERVICES. IT WAS HELD THAT THE EXPLANATI ON TO SECTION 9(2) IS NOT APPLICABLE. IT WAS FURTHER HELD THAT THE SITUATION CONTEMPLATED OR CLARIFIED IN THE EXPLANATION ADDED BY THE FINANCE ACT, 2010 WAS NOT APPLICABLE TO THE CASE OF THE ASSESSEE AS THE AGENTS APPOINTED BY THE ASSE SSEE HAD THEIR OFFICES SITUATED IN THE FOREIGN COUNTRY AND THAT THEY DID N OT PROVIDE ANY MANAGERIAL SERVICES TO THE ASSESSEE. SECTION 9(L)(VII) DEAL WI TH TECHNICAL SERVICES AND HAS TO BE READ IN THAT ITA NO.5603/DEL/2014 CONTEXT. THE A GREEMENT OF PROCURING ORDERS WOULD NOT INVOLVE ANY MANAGERIAL SERVICES. T HE AGREEMENT DID NOT SHOW THE APPLICABILITY OR REQUIREMENT OF ANY TECHNI CAL EXPERTISE AS FUNCTIONING AS SELLING AGENT, DESIGNER OR ANY OTHER TECHNICAL S ERVICES. 22. WE FIND THE HON'BLE SUPREME COURT IN THE CASE O F TOSHOKU LTD. (SUPRA) HAS OBSERVED AS UNDER :- 'DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 1962-63, B, A DEALER IN TOBACCO IN INDIA, PURCHASED TOBACCO AND EXPORTED IT TO JAPAN AND FRANCE THROUGH NON-RESIDENT SALES AGENTS, A JAPANESE COMPA NY AND A FRENCH BUSINESS HOUSE RESPECTIVELY. UNDER THE TERMS OF THE AGREEMEN T, THE JAPANESE COMPANY, WHICH WAS APPOINTED AS EXCLUSIVE SALES AGENT IN JAP AN FOR TOBACCO EXPORTED BY B, WAS ENTITLED TO A COMMISSION OF 3 PER CENT, OF T HE INVOICE AMOUNT. THE SALE PRICE RECEIVED ON THE SALE IN JAPAN WAS REMITTED WH OLLY TO B IN INDIA AND B DEBITED HIS COMMISSION ACCOUNT AND CREDITED THE AMO UNT OF COMMISSION PAYABLE TO THE JAPANESE COMPANY IN HIS ACCOUNT BOOK S AND LATER REMITTED THE AMOUNT TO THE JAPANESE COMPANY. THERE WAS A SIMILAR AGREEMENT WITH THE FRENCH BUSINESS HOUSE IN RELATION TO THE CORRESPOND ING AREA AND SIMILAR CREDIT AND DEBIT ENTRIES AND SUBSEQUENT REMITTANCE OF THE COMMISSION WERE MADE. THE QUESTION WAS WHETHER THE COMMISSION EARNED BY T HE NON-RESIDENT SALES AGENTS COULD BE TAXED IN INDIA, TREATING B AS REPRE SENTATIVE ASSESSEE UNDER S. 161 OF THE L.T. ACT, 1961: HELD, (I) THAT IT COULD NOT BE SAID THAT THE MAKING OF THE ENTRIES IN THE BOOKS OF B AMOUNTED TO RECEIPT, ACTUAL OR CONSTRUCTIVE, BY T HE NON-RESIDENT SALES AGENTS AS THE AMOUNTS SO CREDITED IN THEIR FAVOUR WERE NOT AT THEIR DISPOSAL OR CONTROL; THEY COULD NOT, THEREFORE, BE CHARGED TO T AX ON THE BASIS OF RECEIPT OF INCOME, ACTUAL OR CONSTRUCTIVE, IN THE TAXABLE TERR ITORIES. (II) THAT'THE NON-RESIDENTS DID NOT CARRY ON ANY BU SINESS OPERATION IN THE TAXABLE TERRITORIES : THEY ACTED AS SELLING AGENTS OUTSIDE INDIA. THE RECEIPT IN INDIA OF THE SALE PROCEEDS OF TOBACCO REMITTED OR C AUSED TO THE REMITTED BY THE PURCHASERS FROM ABROAD DID NOT AMOUNT TO AN OPE RATION CARRIED OUT BY THE NON-RESIDENTS IN INDIA AS CONTEMPLATED BY CL. (A) O F THE EXPLANATION TO S. 9(L)(I) OF THE I.T. ACT, 1961. THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON- RESIDENTS FOR SERVICES RENDERED OUTSIDE INDIA COULD NOT BE DEEMED TO BE INCOME WHICH HAD EITHER ACCRUED OR ARISEN IN INDIA. A CREDIT BALANCE, WITHOUT MORE, ONLY REPRESENTS A D EBT AND A MERE BOOK ENTRY IN THE DEBTOR'S OWN BOOKS DOES NOT CONSTITUTE PAYME NT WHICH WILL SOURCE A DISCHARGE FROM THE DEBT.' 5 ITA NO.5293 & 5294/DEL/20 17 23. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE MADR AS HIGH COURT IN THE CASE OF KIKANI EXPORTS PVT. LTD. (SUPRA) AND FAIZAN SHOE S PVT. LTD. (SUPRA). ITA NO.5603/DEL/2014 THE HON'BLE DELHI HIGH COURT IN TH E CASE OF EON TECHNOLOGY P. LTD. (SUPRA) HAS ALSO TAKEN SIMILAR V IEW WHERE IT HAS BEEN HELD THAT NON-RESIDENT COMMISSION AGENTS BASED OUTSIDE I NDIA RENDERING SERVICES OF PROCURING ORDERS CANNOT BE SAID TO HAVE A BUSINESS CONNECTION IN INDIA AND THE COMMISSION PAYMENTS TO THEM CANNOT BE SAID TO HAVE BEEN EITHER ACCRUED OR ARISEN IN INDIA. IN VIEW OF THE DECISIONS CITED ABO VE (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX UNDER THE PROVISIONS OF SECTION 195 OF THE I.T. ACT ON ACCOUN T OF FOREIGN AGENCY COMMISSION PAID OUTSIDE INDIA FOR PROMOTION OF EXPO RT SALES OUTSIDE INDIA. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET-ASIDE A ND THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. THUS, BOTH THE ISSUES INVOLVED IN APPEAL AND IN CRO SS OBJECTIONS ARE COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, THE A PPEAL OF THE REVENUE IS DISMISSED AND CROSS- OBJECTION OF THE AS SESSEE IS ALLOWED. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-OR DINATE BENCH IN THE CASE OF THE ASSESSEE FOR THE EARLIER YEAR, WE D ISMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 6. THE LD. CIT(A) HAS ALSO ALLOWED THE RELIEF TO TH E ASSESSEE ON THE BASIS OF HIS PREDECESSORS DECISIONS IN THE CASE OF ASSESSEE ITSELF. THEREFORE, BY FOLLOWING THE JUDICIAL PRECEDENTS IN THE CASE OF ASSESSEE ITSELF, THE APPEALS FILED BY THE REVENUE ARE DISMIS SED. 7. FINALLY, THE APPEALS FILED BY THE REVENUE ARE DI SMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 06/08/ 2019. SD/- SD/- [BHAVNESH SAINI] [T.S. KAPOOR] JUDICIAL MEMBER ACCOUNTANT MEMBER DELHI; DATED: 06/08/2019. F{X~{T? F{X~{T? F{X~{T? F{X~{T? FA FA FA FA P.S P.SP.S P.S 6 ITA NO.5293 & 5294/DEL/20 17 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI