Asstt. Commissioner of Income Tax-1, Kanpur V. M/s Northern Tannery, Kanpur

ITA 577/LKW/2013

• Counselvise Citation: 57723714 RSA 2013
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K UPADHYAY
• Keywords: Deemed to accrue or arise in india; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.577/LKW/2013 ASSESSMENT YEAR:2009-10 ASSTT. CIT-1, KANPUR V. M/S NORTHERN TANNERY 150 FT. ROAD, JAJMAU, KANPUR TAN/PAN:AAAFN6778L (APPELLANT) (RESPONDENT) C.O. NO.32/LKW/2013 ASSESSMENT YEAR:2009-10 M/S NORTHERN TANNERY 150 FT. ROAD, JAJMAU, KANPUR V. ASSTT. CIT-1, KANPUR TAN/PAN:AAAFN6778L (CROSS OBJECTOR) (RESPONDENT) DEPARTMENT BY: SHRI. K. K. UPADHYAY, D.R. ASSESSEE BY: SHRI. ASHISH JAISWAL, ADVOCATE DATE OF HEARING: 08 01 2015 DATE OF PRONOUNCEMENT: 16 01 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.26,03,209/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON-DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENT WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE ADDITION MADE BY THE ASSESSING OFFICER WITHOUT CONSIDERING THE BOARD'S CIRCULAR NO.7/2009 DATED 22.10.2009. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR :- 2 -: HAS NOT APPRECIATED THE SETTLED PRINCIPLE IN RESPECT OF INTERPRETATION OF PROSPECTIVE OR RETROSPECTIVE NATURE OF AMENDMENT IN THE STATUTE AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS GOLD COIN HEALTH FOOD PVT. LTD.(OOS) 304 ITR 308 (SC) AND CIT VS MOSER BAER INDIA LTD.[2009] 315 ITR 460(SC). 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE SERVICES RENDERED BY THE NON RESIDENT AGENT TO PROCURE ORDERS FROM FOREIGN BUYERS ARE PURELY TECHNICAL AS WELL AS MANAGERIAL IN NATURE. THEREFORE, THE PROVISION OF SECTION 9(1)(VII) IS CLEARLY APPLICABLE ON THE ASSESSEE. 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE PAYMENT BY THE RESIDENT ASSESSEE IN CONNECTION WITH ITS BUSINESS IN INDIA TO A PERSON OUTSIDE COUNTRY IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO THE NON- RESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM 6. THAT THE ORDER OF THE LD. CIT (A)-II, KANPUR DATED 28.03.2013 NEEDS TO BE QUASHED AND THE ORDER PASSED BY THE ASSESSING OFFICER DATED 08.12.2011 TO BE RESTORED. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION ASSAILING THE ORDER OF THE LD. CIT(A) ON THE FOLLOWING GROUNDS:- 1. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR WAS CORRECT BOTH ON LAW AS WELL AS ON FACTS IN DELETING THE ADDITION OF RS. 26,03,209.00 MADE ON ACCOUNT OF NON-DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO FOREIGN AGENT, WHICH DECISION WAS TAKEN AFTER APPRECIATING THE FACTS; EVIDENCE ON RECORDS; CIRCULARS ISSUED BY THE BOARD FROM TIME TO TIME AS WELL AS IN ACCORDANCE WITH :- 3 -: PROVISIONS OF LAW. 2. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR WAS VERY MUCH CORRECT IN HOLDING THAT THE SERVICES RENDERED BY THE FOREIGN AGENTS ARE NEITHER TECHNICAL NOR MANAGERIAL IN NATURE AND IN HOLDING THAT PROVISIONS OF SECTION 9 (1) (VII) WAS NOT APPLICABLE TO THE ASSESSEE AND PAYMENT TO NON- RESIDENTS WAS JUST COMMISSION AND NOT FEE FOR TECHNICAL SERVICES. 3. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF PACKING AND FORWARDING EXPENSES THOUGH REDUCING THE DISALLOWANCE TO RS.40000.00. 4. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF POSTAGE EXPENSES THOUGH REDUCING THE DISALLOWANCE TO RS.20000.00. 5. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED PN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF REPAIRING OF MACHINERY THOUGH REDUCING THE DISALLOWANCE TO RS.10000.00. 6. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF PRINTING & STATIONERY THOUGH REDUCING THE DISALLOWANCE TO RS.10000.00. 7. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF MISCELLANEOUS EXPENSES THOUGH V REDUCING THE DISALLOWANCE TO RS.25000.00. 8. THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) II, KANPUR HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF MISCELLANEOUS STORE PURCHASE :- 4 -: THOUGH REDUCING THE DISALLOWANCE TO RS.25000.00. 9. THAT THE CROSS OBJECTOR CRAVES LEAVE TO INTRIDUCE, WITHDRAW OR MODIFY ANY GROUND OF CROSS OBJECTION WITH THE PERMISSION OF YOUR HONOUR. 3. SINCE THE APPEAL AND THE CROSS OBJECTION WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, FOR THE SAKE OF CONVENIENCE, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. I.T.A. NO. 577/LKW/2013: 4. THOUGH THE REVENUE HAS RAISED VARIOUS GROUNDS IN ITS APPEAL, BUT THEY ALL RELATE TO THE NON-DEDUCTION OF TDS ON PAYMENT OF COMMISSION TO THE FOREIGN AGENT. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THIS ISSUE IS COVERED BY THE ORDER OF THE JURISDICTIONAL HIGH COURT AND VARIOUS ORDERS OF THE TRIBUNAL, PARTICULARLY IN THE CASE OF ACIT VS. M/S MODEL EXIMS, KANPUR IN I.T.A. NO. 697/LKW/2013 IN THE LIGHT OF CBDT CIRCULAR AND AMENDMENTS. WE FIND THAT THE VIEW TAKEN BY THE TRIBUNAL HAS BEEN APPROVED BY THE HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. M/S MODEL EXIMS, 358 ITR 2 (ALLD). THE RELEVANT OBSERVATIONS OF THE HON'BLE HIGH COURT ARE EXTRACTED HEREUNDER:- WE FIND THAT ALL THE QUESTIONS AS FRAMED BY THE DEPARTMENT ARE COVERED BY OUR JUDGMENT IN CIT V. M/S MODEL EXIMS, KANPUR, INCOME TAX APPEAL (DEF.) NO.164 OF 2011, DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE ON 10.09.2013 AND DIE JUDGMENT IN CIT, KANPUR V. M/S ALLIED EXIMS, INCOME TAX APPEAL NO.313 OF 2013 DECIDED ON 13.11.2013. IN BOTH THESE JUDGMENTS WE HAVE HELD, THAT A.O. DID NOT BRING ANYTHING ON RECORD, WHICH COULD DEMONSTRATE THAT NON-RESIDENT AGENTS WERE APPOINTED AS SELLING AGENTS, DESIGNERS OR TECHNICAL ADVISERS. THE PAYMENT OF COMMISSION TO FOREIGN AGENTS DID :- 5 -: NOT ENTITLE SUCH FOREIGN AGENTS TO PAY TAX IN INDIA AND THUS THE TDS WAS NOT LIABLE TO BE DEDUCTED UNDER SECTION 195 OF THE ACT. THE DISALLOWANCE MADE BY A.O. UNDER SECTION 40 (A) (I) FOR NON-DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 WERE NOT JUSTIFIED. SHRI BHARAT JI AGRAWAL HAS TRIED TO DISTINGUISH THE JUDGMENTS ON THE GROUND THAT IN THE PRESENT CASE THERE WAS SUFFICIENT MATERIAL BY WAY OF WRITTEN SUBMISSIONS OF THE ASSESSEE, WHO HAD STATED IN HIS REPLY ON 20.12.2010 THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF MANUFACTURE AND EXPORT OF FINISHED LEATHER, SHOE UPPER AND LEATHER PRODUCTS. THE ASSESSEE'S MAIN BUSINESS BEING EXPORT BUSINESS IT HAS TO TAKE THE SERVICE OF FOREIGN AGENTS, WHO SECURE EXPORT ORDERS AND HELP IN EXECUTION OF SUCH BUSINESS. FOR THE SERVICES RENDERED BY THE FOREIGN AGENTS, THEY ARE PAID COMMISSION IN FOREIGN EXCHANGE BY REMITTING THE AMOUNT THROUGH BANK. WE FIND THAT THE CIT (A) HAS CONSIDERED THE ALLEGED ADMISSION IN THE REPLY OF THE ASSESSEE AND HAS ALSO PERUSED THE AGREEMENT FROM WHICH HE FOUND THAT THERE WAS NOTHING, WHICH COULD DEMONSTRATE THAT THESE AGENTS WERE APPOINTED AS SELLING AGENTS, DESIGNERS OR TECHNICAL ADVISERS FOR INVOKING THE PROVISIONS OF SECTION 9 (1) (VII) OF THE ACT. THE FINDINGS RECORDED BY THE CIT (A), WHICH HAVE BEEN CONFIRMED BY THE ITAT IS QUOTED AS BELOW:- '5.3.2 THE A. O. HAS ALSO INVOKED THE PROVISIONS OF SECTION 9 (1) (VII) ON THE PREMISE THAT SUCH PAYMENTS ALSO FULL UNDER FTS. IN THIS REGARD SHE HAS OBSERVED THAT NORMALLY THE EXPORTER APPOINTS THE AGENTS AS HIS SELLING AGENT, DESIGNER & TECHNICAL ADVISER FOR HIS PRODUCTS. HE HAS FURTHER OBSERVED THAT BEING COMMISSION AGENT REQUIRED MANAGERIAL ACUMEN & EXPERTISE AND THEREFORE, WOULD BE COVERED UNDER SECTION 9 (1) (VII) OF THE ACT AS MANAGERIAL SERVICES. ON PERUSAL OF THE ASSESSMENT ORDER AND ASSESSMENT FOLDER, I FIND THAT THE A.O. HAS NOT BROUGHT ANYTHING ON RECORD WHICH COULD DEMONSTRATE THAT THESE AGENTS HAD BEEN APPOINTED AS SELLING AGENTS, DESIGNERS & TECHNICAL ADVISERS. RATHER ON ME CONTRARY I FIND :- 6 -: THAT THE AGREEMENT IS OF FOR PROCURING ORDERS AND NOTHING ELSE. IN ABSENCE OF ANY SUCH EVIDENCE, THIS OBSERVATION OF THE A.O. IS MERE CONJECTURE AND THEREFORE, NO COGNIZANCE OF THE SAME CAN BE TAKEN. IT IS A TRITE LAW THAT SUSPICION, NO MATTER HOW GRAVE, CANNOT TAKE PLACE OF EVIDENCE. IN THIS CASE, THERE IS EVEN NO CASE OF SUSPICION, LEAVE ASIDE ANY EVIDENCE TO THE EFFECT THAT THE AGENTS WERE NOT ONLY SELLING AGENTS BUT ALSO DESIGNERS AND TECHNICAL ADVISERS. THE CONFIRMATION FROM THE RESPECTIVE FOREIGN AGENTS THAT THE FOREIGN AGENTS DID NOT HAVE ANY BRANCH OR PE IN INDIA FURTHER SUPPORTS THE CASE OF THE APPELLANT. 5.3.3 THE A.O.'S OBSERVATION THAT AS A SELLING AGENT, THE AGENT HAS TO HAVE MANAGERIAL ACUMEN AND, THEREFORE, HIT BY THE PROVISIONS OF SECTION 9 (1) (VII), IS BASELESS. THE PROVISIONS OF SECTION 9 (1) (VII) DEALS WITH FEES FOR TECHNICAL SERVICES AND IT HAS TO BE READ IN THAT CONTEXT. PAR THAT MATTER, EVERYTHING IN LIFE REQUIRES MANAGERIAL SKILLS, LIKE RUNNING THE HOUSEHOLD, BEING AN ASSESSING OFFICER, RUNNING A SHOP ETC. WILL THAT TANTAMOUNT TO PROVIDING MANAGERIAL SERVICES IN THE CONTEXT OF SECTION 9 (1) (VII)? THE ANSWER IS CLEAR NO. THUS, THE AFORESAID PAYMENTS DO NOT FALL WITHIN THE MEANING OF 'FTS' AS DESCRIBED IN SECTION 9 (1) (VII) OF THE ACT. 5.3.4 THE INCOME OF THE NON-RESIDENT WAS NOT CHARGEABLE TO TAX IN INDIA SINCE THE SAME WAS NEITHER RECEIVED IN INDIA NOR HAD IT ACCRUED OR DEEMED TO ACCRUE IN INDIA. ACCORDINGLY, THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 IN RESPECT OF COMMISSION PAID TO THE FOREIGN AGENTS. DISALLOWANCE U/S 40 (A) (I) IS, THEREFORE, DELETED.' SHRI BHARAT JI AGRAWAL SUBMITS THAT THE CIT (A) AND ITAT HAVE NOT CONSIDERED THE EXPLANATION ADDED TO SECTION 9 (1) (VII) BY THE FINANCE ACT, 2010 W.E.F. 1.6.1976 AND WHICH PROVIDES THAT FOR THE PURPOSE OF SECOND PROVISO THE INCOME OF SUCH NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR :- 7 -: CLAUSE (VII) [OF SUB-SECTION (1)] AND SHALL BE INCLUDED IN TOTAL INCOME OF NON-RESIDENT WHETHER OR NOT, NON-RESIDENT HAS RESIDENCE OR PLACE OF BUSINESS OR BUSINESS COMMISSION IN INDIA; OR NON-RESIDENT HAS RENDERED SERVICES IN INDIA. WE DO NOT FIND THAT THE FACT SITUATION CONTEMPLATED OR CLARIFIED IN THE EXPLANATION ADDED BY FINANCE ACT, 2010 IS APPLICABLE TO THE PRESENT CASE AS IN THE PRESENT CASE THE AGENTS APPOINTED BY THE ASSESSEE HAD THEIR OFFICES SITUATE IN A FOREIGN COUNTRY AND THAT THEY DID NOT PROVIDE ANY MANAGERIAL SERVICES TO THE ASSESSEE. SECTION 9 (1) (VII) DEALS WITH TECHNICAL SERVICES AND HAS TO BE READ IN MAT CONTEXT. THE AGREEMENT OF PROCURING ORDERS WOULD NOT INVOLVE ANY MANAGERIAL SERVICES. THE AGREEMENT DID NOT SHOW THE APPLICABILITY OR REQUIREMENT OF ANY TECHNICAL EXPERTISE AS FUNCTIONING AS SELLING AGENT, DESIGNER OR ANY OTHER TECHNICAL SERVICES. THERE ARE NO DISTINGUISHING FEATURE IN THIS CASE, NOR DO WE FIND THAT THE RATIO OF THE CONSTITUTION BENCH DECISION IN COMMISSIONER OF C. EX., BOLPUR V. RATAN MELTING & WIRE INDUSTRIES, (2008) (231) E.L.T. 22 (SC) (PARA 6) IS APPLICABLE IN AS MUCH AS IN THE PRESENT CASE THERE WAS NO DECISION OF THE SUPREME COURT OR HIGH COURT OR ANY STATUTORY PROVISION, WHICH WAS CONTRARY TO THE CIRCULAR, WHICH WAS WITHDRAWN ON 22.10.2009. THE QUESTIONS OF LAW ARE COVERED BY THE JUDGMENTS OF THIS COURT CITED AS ABOVE, AND ARE DECIDED IN FAVOUR OF THE ASSESSEE AND A AGAINST THE DEPARTMENT. 6. WE, THEREFORE, FOLLOWING THE AFORESAID JUDGMENT OF THE JURISDICTIONAL HIGH COURT, DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND CONFIRM THE ORDER OF THE LD. CIT(A) IN THIS REGARD. 7. IN THE CROSS OBJECTION, THE FIRST TWO GROUNDS RELATING TO PAYMENT OF COMMISSION TO FOREIGN AGENT ARE IN SUPPORT OF THE ORDER OF THE LD. CIT(A). SINCE THIS ISSUE IS DISPOSED OF IN THE REVENUES APPEAL IN FAVOUR OF THE :- 8 -: ASSESSEE, THESE GROUNDS HAVE BECOME INFRUCTUOUS AND WE DISMISS THE SAME. 8. WITH REGARD TO GROUNDS NO.3 TO 9, NO SPECIFIC ARGUMENT WAS RAISED BY THE LD. COUNSEL FOR THE ASSESSEE EXCEPT SUPPORTING THE ORDER OF THE LD. CIT(A). WE, THEREFORE, FIND NO MERIT IN THESE GROUNDS. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A). 9. IN THE RESULT, APPEAL OF THE REVENUE AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:16 TH JANUARY, 2015 JJ:0801 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR