ITO 2(1)2, MUMBAI V. CITY CAT OVERSEAS CHEMICALS LTD, MUMBAI

ITA 5854/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100558 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 03-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 01-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Recovery proceedings; Business income; Business expenditure; Permanent establishment
• Section: 145

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI VIJA Y PAL RAO, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT, MEMBER ./ ITA NO. 5854 /MUM/20 1 3 ( / ASSESSMENT YEAR: 2010 - 11 ) INCOME - TAX OFFICER - 2(1)2, MUMBAI - 400021. APPELLANT VS. M/S.CITY CAT OVERSEAS CHEMICALS LTD., CITY CAT HOUSE,POLICE COURT LANE, FORT, MUMBAI - 400 001. RESPONDENT PAN: AAACC8123B AND CROSS OBJN.NO.244/MUM/2014 (IN ITA NO.5854/MUM/2013) ASSESSMENT YEAR: 2010 - 11) (BY THE ASSESSEE) REVENUE BY : SHRI PANKAJ KUMAR, DR. ASSESSEE BY : SHRI D.V.LAHARUKA . DATE OF HEARING : 03/08/2015 DATE OF PRONOUNCEMENT : 07 /08/2015 PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 25/7/2013 OF THE ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 2 OF 12 CIT(A) - IV, MUMBAI FOR THE ASSESSMENT YEAR 2010 - 11. THE REVENUE HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN L AW , THE LD . C I T ( A ) E RR ED I N DELETING THE D I SALLOWANCE OF RS . 85 , 2 1 , 1 38 / - MADE U / S . 40 ( A )(I) O F T H E I NCO M E TAX ACT , 1961 W I THO UT APP R EC I AT IN G T H A T THE ASSESSEE HAD CLA I MED TH E SA I D EXPEND I TURE I N THE BOOKS OF ACCOUNTS AND T HERE F O R E AS PER THE PROV I S I ONS OF SECT I ON 195 OF THE INCOME TAX ACT I T WAS LI AB L E TO MAKE TDS ON THE SA I D PAYMENTS , FAILING WH I CH PROV I S I ONS OF SECT I ONS 40 ( A )( I ) OF TH E INCOME ACT , 1961 WAS APP L ICABLE TO I T . 2. W I THOUT P R E JU D I CE T O TH E ABOVE , O N TH E F ACTS A N D C I RCUMSTANCES OF T HE CASE AND I N L AW THE LD . C I T ( A ) E RR ED IN DE L E TIN G T H E D I SA L L O W A N CE U / S 40 ( A )( I ) OF T H E INC O M E TAX ACT O F RS . 85 , 2 1 , 1 38 / - W I THOU T APP R EC I AT I NG THAT , I F THE P R O VI S I O N S OF SEC TI O N S 195 OF THE INCOME TAX ACT WAS NOT APP LI CAB L E ON THE SA I D PAYMENTS THEN THE CLAIM OF THE SAID AMOUNT AS BUSINESS EXPENDITURE IN TH E BOOKS WAS NOT ALLOWABLE TO THE ASSESSEE . 3. W I THO UT P R E JU D I CE TO THE ABOVE G R OUNDS , ON THE . FACTS AND C I RCUMSTANCES OF T H E CASE AND IN L AW THE LD . CIT ( A ) HAS FA IL ED TO APPREC I ATE THE FACT THAT THE PAY M E NT S TO THE EX T E N T OF RS . 71 , 5 ~ , 596 / - PERTAINS TO THE PRIOR PER I OD AND THEREFO R E NO T A L LOWABLE AS EXPEND I TURE, BECAUSE AS PE R THE PROV I S IONS OF SECT I ON 145 OF THE INCOME TAX ACT AS TO FO LL OW THE ME R CANT I LE SYSTEM OF ACCOUNT I NG IS MANDATORY FOR THE CO M PAN Y ASSESSEE . 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION AND ADJUDICATION IS WHETHER THE CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.85,21,138/ - MADE BY THE AO U/S 40(A)(I) OF THE IT ACT,1961 ON ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 3 OF 12 ACCOUNT OF NON - DEDUCTION OF TAX ON COMMISSION PAID TO NON - RESIDENT OUTSIDE INDIA. 3. WE HAVE HEARD THE LEARNED DR AS WELL AS THE AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS AN 10 0% EXPORTER OF DYESTUFFS, IRON, STEEL AND OTHER ITEMS. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED EXPENSES TOWARDS COMMISSION PAID TO FOREIGN AGENT. AO ASKED THE ASSESSEE TO FURNISH DETAILS OF THE COMMISSION PAID TO FOREIGN AGENT. THE ASSESSEE SUBMITTED THE DETAILS OF THE COMMISSION PAID. FROM THE DETAILS FILED BY THE ASSESSEE, AO FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THESE PAYMENTS. ACCORDINGLY, AO DISALLOWED THE SAID CLAIM BY INVOKING THE PROVISIONS OF SEC. 40(A)(I). AO HELD THAT THE INCOME ACCRUED OR ARISEN TO THE FOREIGN AGENT IS DIRECTLY OR INDIR E CTLY THROUGH OR FROM THE BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA. THEREFORE, THE SAID INCOME SHALL BE DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA. TO SUPPORT HIS VIEW, THE AO HAS RECORDED THE REASON THAT RIGHT TO RECEIVE COMMISSION ARISES IN INDIA WHEN THE ORDER IS EXECUTED BY THE ASSESSEE IN INDIA. 4. ON APPEAL, THE CIT(A) HAS DELETED THE ADDITION BY HOLDING THAT COMMISSION INCOME PAID TO FOREIGN AGENT IS NOT CH ARGEABLE TO TAX IN INDIA. THEREFORE, TAX WAS NOT REQUIRED TO BE PAID NOR ANY TAX WAS REQUIRED TO BE DEDUCTED U/S 195 OF THE ACT. ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 4 OF 12 5 . BEFORE US, LEARNED DR HAS HEAVILY RELIED UPON THE FINDING OF THE AO. ON THE OTHER HAND, LEARNED AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF THIS TRIBUNAL DATED 21/11/2014 IN ITA NO.4522/MUM/2013 IN THE CASE OF ACIT VS. VILAS N TAMHANKAR AND SUBMITTED THAT THE COMMISSION PAID TO FOREIGN AGENT IS NOT CHARGEABLE TO TAX IN INDIA AND THEREFORE THERE IS NO QUESTION OF LIABILITY OF THE ASSESSEE TO DEDUCTED TAX AT SOURCE U/S 195 AND CONSEQUENTIAL DISALLOWANCE U/S 40(A)(I) OF THE ACT. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, W E FIND THAT THE AO HAS ACCEPTED THAT THE PAYMENT MADE BY THE ASSESSEE IS ON ACCOUNT OF COMMISSION AND COMPENSATION TO THE FOREIGN AGENT AND THEREFORE IT IS NOT THE CASE OF THE AO THAT THE PAYMENT IN QUESTION IS EITHER FEE FOR TECHNICAL SERVICE OR ROYALTY WHICH COULD BE TAXED IN INDIA AS PER PROVISIONS OF SEC.9(1) OF THE ACT. WE FURTHER NOTE THAT THE AO HAS SUPPORTED HIS FINDING BY CITING THE REASON THAT COMMISSION INCOME AR I SE S IN INDIA BECAUSE RIGHT TO RECEIVE COMMISSION ARISES WHEN THE ORDER IS EXECUTED BY THE ASSESSEE IN INDIA. IN OUR VIEW, THIS LOGIC AND CONTENTION OF THE AO IS ABSOLUTELY ERRONEOUS AND BASED ON MIS - INTERPRETATION OF THE TERM ACCRUE OR ARISE IN INDIA AS P ER THE PROVISIONS OF SEC.9(1) OF THE ACT. THE C OMMISSION IS PAID TO FOREIGN AGENT FOR SERVICES RENDERED BY THE AGENT OUTSIDE INDIA AND THE AGENT HAS NO BUSINESS LINK OR SOURCE OF ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 5 OF 12 INCOME IN INDIA. THEREFORE, IN ABSENCE OF ANY BUSINESS CONNECTION OR SOURC E OF INCOME AND CONSEQUENTLY ANY PERMANENT ESTABLISHMENT IN INDIA, THE SAID INCOME IN THE HANDS OF THE FOREIGN AGENT IS NOT TAXABLE IN INDIA. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VILAS N T AMHANKAR (SUPRA) IN PARA 4 AS UNDER: 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. THE PAYMENT TO THE PAYEE, SANGEETA CHOUDHARY, EVEN AS CLARIFIED BEFORE THE ASSESSING AUTHORITY, WAS FOR SALES AND MARKETING SUPPORT OUTSID E INDIA. NO PART OF THE SERVICES, TOWARD WHICH PAYMENT HAD BEEN MADE TO HER, WAS RENDERED IN INDIA; THE PAYEE ALSO HAVING NO PLACE OF BUSINESS OR ESTABLISHMENT IN INDIA. THERE WAS THUS, AS PER THE ASSESSEE, NO QUESTION OF ANY PART OF THE IMPUGNED SUM BEING CHARGEABLE TO TAX IN INDIA; FURTHER RELYING ON THE DECISION IN THE CASE OF GE INDIA TECHNOLOGY (SUPRA). THE FACTS BEING NOT IN DISPUTE, THE ISSUE ARISING IS PRIMARILY LEGAL, I.E., WHETHER THE PROVISION OF S. 40(A)(I) IS ATTRACTED IN THE FACTS OF THE CASE. SECTION 40(A)(I), OVERRIDING SECTIONS 30 TO 38, PROVIDES THAT WHERE ANY INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THE ACT, IS PAID EITHER OUTSIDE INDIA OR IN INDIA TO A NON - RESIDENT (NOT BEING A FOREIGN COMPANY) OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B, AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION NOT BEEN 3 ITA NO. 4522/MUM/2013 (A.Y. 2009 - 10) ASST. CIT VS. VILAS N. TAMHANKAR PAID DURING THE PREVIOUS YEAR OR IN THE SUBS EQUENT YEAR BEFORE THE EXPIRY OF THE TIME ALLOWED U/S. 200(1), THE SAID AMOUNT SHALL NOT BEEN ALLOWED IN COMPUTING THE BUSINESS INCOME. THE FIRST THING, THEREFORE, THAT WE WOULD NEED TO SEE IS WHETHER THE PROVISIONS OF CHAPTER XVII - B ARE ATTRACTED TO THE I MPUGNED PAYMENT. THE PAYMENTS TO A NON - RESIDENT BEING COVERED UNDER SECTION 195, WE BEGIN BY ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 6 OF 12 REPRODUCING THE SAME IN ITS RELEVANT PART, THE INTERPRETATION OF WHICH IS IN ISSUE: OTHER SUMS. 195. (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC) OR SECTION 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLI ER, DEDUCT INCOME - TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CL AUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE; PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115 - O. (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUCH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON - RESIDENT CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASS ESSING OFFICER TO DETERMINE, BY GENERAL OR SPECIAL ORDER, THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE, AND UPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDER SUB - SECTION (1) ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE. T HE LD. CIT(A) HAVING ALLOWED RELIEF TO THE ASSESSEE ON THE BASIS THAT THE DECISION BY THE APEX COURT IN GE ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 7 OF 12 INDIA TECHNOLOGY (SUPRA), RENDERED AFTER CONSIDERING THE DECISION IN THE CASE OF TRANSMISSION CORPN. OF A.P. LTD. (SUPRA), COVERS THE ASSESSEES CASE , SO THAT NO TAX WAS DEDUCTIBLE U/S. 195, WHAT WE ARE REQUIRED TO, IN ORDER TO DECIDE THE REVENUES APPEAL THERE - AGAINST, DO IS TO EXAMINE THE VALIDITY OF THE SAID FINDING, AND TOWARD THE SAME, THE SAID DECISION. AS EXPLAINED BY THE APEX COURT THEREIN, IF THE INTERPRETATION BEING ACCORDED BY THE REVENUE TO SECTION 195, I.E., THAT THE MOMENT PAYMENT TO A NON - RESIDENT IS MADE, THE OBLIGATION TO DEDUCT THE TAX AT SOURCE (TAS) ARISES, IS ACCEPTED, THE SAME WOULD IMPLY OBLITERATING THE WORDS CHARGEA BLE UNDER THE PROVISIONS OF THE ACT OCCURRING IN SECTION 195(1). SECTION 195 FALLS UNDER PART B OF CHAPTER XVII OF THE ACT, TITLED COLLECTION AND RECOVERY OF TAX. AS EXPLAINED THEREIN, THE ACT FORMS ONE INTEGRATED CODE, AND THE CHARGING SECTIONS CANNOT BE READ DE HORS THE MACHINERY SECTIONS. DUE WEIGHT HAS TO BE GIVEN TO EVERY WORD IN THE SECTION. THE INTERPRETATION BY THE REVENUE WAS, IN ITS VIEW, GUIDED MORE BY ADMINISTRATIVE CONVENIENCE, AND WHICH WOULD THOUGH IMPLY DEDUCTION OF TAX EVEN ON PAYMENTS Q UA WHICH THERE WAS NO TERRITORIAL NEXUS WITH INDIA OR OTHERWISE WERE NOT CHARGEABLE TO TAX IN INDIA. ADMINISTRATIVE CONSIDERATIONS COULD NOT BE THE BASIS OF THE INTERPRETATION OF THE STATUTORY PROVISIONS, EVEN AS THE LAW CONTEMPLATES ADEQUATE SAFEGUARDS IN THE FORM OF SECTION 40(A)(I) AND SECTION 195(6); THE LATTER BEING INSERTED ON THE STATUTE BY FINANCE ACT, 2008 W.E.F. 01.04.2008. THE HONBLE COURT ALSO EXPLAINED THE DECISION IN THE CASE OF TRANSMISSION CORPN. OF A.P. LTD. (SUPRA). SECTION 195 CONTEMPLAT ES DEDUCTION OF TAX AT SOURCE NOT ONLY ON AMOUNTS, WHOLE OF WHICH ARE PURE INCOME PAYMENTS, BUT ALSO COVERS PAYMENTS WHICH HAVE AN ELEMENT OF INCOME IMBEDDED OR INCORPORATED THEREIN. WHERE, THEREFORE, THE PAYER ENTERTAINS A DOUBT AS TO THE AMOUNT ON WHICH THE TAX IS TO BE DEDUCTED OR OTHERWISE CONSIDERS THAT THE SAME IS NOT DEDUCTIBLE ON THE GROSS AMOUNT ON THE FOOTING THAT ONLY A PART THEREOF REPRESENTED INCOME CHARGEABLE TO TAX IN INDIA, IT WAS NECESSARY FOR HIM TO APPROACH THE A.O. U/S.195(2) AND OBTAIN PERMISSION FOR DEDUCTION AT SOURCE OF TAX AT A LESSER AMOUNT. SECTION 195(2), THUS, GETS ATTRACTED ONLY IN CASE OF COMPOSITE PAYMENTS, A PART OF WHICH HAVE AN ELEMENT OF INCOME ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 8 OF 12 CHARGEABLE TO TAX IN INDIA. THE OBSERVATIONS BY IT IN TRANSMISSION CORPN. OF A. P. LTD. (SUPRA) THAT IF NO SUCH APPLICATION WAS FILED, INCOME TAX ON SUCH SUM WAS TO BE DEDUCTED AND THAT IT WAS THE STATUTORY OBLIGATION OF THE PERSON RESPONSIBLE FOR PAYING THIS SUM TO DEDUCT INCOME TAX THEREON BEFORE MAKING THE PAYMENT, IT WAS EXPLAINED , WERE MADE IN THAT CONTEXT. IN OUR VIEW TOO, THE SAID DECISION BY THE APEX COURT, WHICH WE FIND TO BE IN CONSONANCE WITH THE DECISIONS RENDERED EARLIER, AS IN CIT VS. COOPER ENGINEERING LTD. [1968] 68 ITR 457 (BOM); CIT VS. ELI LILLY & CO. (IN DIA) (P.) LTD. [2009] 312 ITR 225 (SC); VIJAY SHIP BREAKING CORPN. VS. CIT [2009] 314 ITR 309 (SC) AND, RATHER TRANSMISSION CORPN. OF A.P. LTD. (SUPRA) AS WELL, SQUARELY COVERS THE FACTS OF THE INSTANT CASE. THE REVENUE, TO ENABLE US TO DISTURB THE LIKE FI NDING BY THE LD. CIT(A), OUGHT TO HAVE EXPLAINED AS TO HOW IT IS INFIRM OR DOES NOT AMOUNT TO A CORRECT READING OF THE SAID DECISION, OR IS OTHERWISE NOT APPLICABLE IN THE FACTS OF THE CASE. IN FACT, THE ASSESSEE HAVING ADMITTEDLY NEITHER DEDUCTED TAX AT S OURCE NOR MADE ANY APPLICATION U/S.195(2) TO THE A.O., ON THE FOOTING THAT NO PART OF THE RELEVANT PAYMENT REPRESENTS INCOME CHARGEABLE TO TAX IN INDIA, THE REVENUE OUGHT TO, IN OUR VIEW, HAVE IMPUGNED THE SAID BASIS, ON WHICH THE ASSESSEES CASE RESTS. AN D WHICH IT HAS FAILED TO IN ANY MANNER. IF, AS MAINTAINED THROUGHOUT BY THE ASSESSEE, NO PART OF THE SERVICES, FOR WHICH PAYMENT HAS BEEN MADE, STAND RENDERED IN INDIA, HOW WE WONDER COULD HE BE FAULTED IN HOLDING IT TO BE NOT CHARGEABLE TO TAX IN INDIA. T HIS IN FACT IS ALSO THE REQUIREMENT AND AN ESSENTIAL INGREDIENT OF S. 40(A)(I), SO THAT THE A.O., INVOKING THE SAME, IS IN FACT OBLIGED IN LAW TO RENDER A FINDING AS TO THE CHARGEABILITY OF THE IMPUGNED SUM TO TAX UNDER THE ACT, WHICH IS ABSENT IN THE INST ANT CASE. WE ARE CONSCIOUS THAT EXPLANATION 2 TO SECTION 195(1) HAS SINCE BEEN CO - OPTED ON THE STATUTE, I.E., BY FINANCE ACT, 2012 W.E.F. 01.04.1962, AND WHICH READS AS UNDER: OTHER SUMS. 195. (1) . EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB - SECTION (1) AND TO MAKE DEDUCTION ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 9 OF 12 THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON - RESIDENT, WHET HER OR NOT THE NON - RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. THE SAME, HOWEVER, IN OUR VIEW, WOULD NOT OPERATE TO DISTURB THE LAW AS ENUNCIATED IN GE INDIA TECHNOLOGY (SUPRA), EXCEPT WHERE THE BASIS OF THE PAYERS BELIEF, I.E., AS TO THE NON - CHARGEABILITY OF THE PAYMENT TO TAX IN INDIA, IS ON THE GROUND T HAT THE PAYEE HAS NO PLACE OF BUSINESS OR BUSINESS CONNECTION OR OTHERWISE ANY PRESENCE WHATSOEVER IN INDIA. IN THE PRESENT CASE, THE EDIFICE OF THE ASSESSEES CASE IS THE RENDERING OF THE SERVICES OUTSIDE INDIA. THEREFORE, THOUGH FOR A CONSIDERATION FOR M ARKETING AND SALE SUPPORT SERVICES AND, THUS, ONLY IN THE NATURE OF COMMISSION OR SERVICE CHARGES, THE SAME HAS NO NEXUS WITH INDIA. ALL THAT, IN OUR CLEAR VIEW, THE SAID EXPLANATION DOES IS TO REMOVE THE ISSUE OF THE DETERMINATION OF THE TAX INCIDENCE ON THE BASIS OF WHETHER THE PAYEE IS A TAX RESIDENT IN INDIA FROM BEING A CONSIDERATION FOR NON - DEDUCTION OF TAX AT SOURCE U/S.195. THE PAYEE IN THE INSTANT CASE, BEING ADMITTEDLY A RESIDENT OF CANADA, WITH THE SERVICES BEING RENDERED THEREAT, THE ISSUE OF PL ACE OF BUSINESS IN INDIA IS NOT AN ISSUE. THE ASSESSEES STATING OF THE PAYEE HAVING NO PLACE OF BUSINESS OR ESTABLISHMENT IN INDIA, IS ONLY TOWARD AND IN SUPPORT OF ITS CONTENTION OF THE SERVICES BEING RENDERED WHOLLY OUTSIDE INDIA. THERE IS IN FACT NO CH ARGE BY THE REVENUE OF THE PAYEE HAVING ANY PLACE OF BUSINESS OR OTHERWISE BUSINESS CONNECTION IN INDIA. THE SAID EXPLANATION WOULD, THEREFORE, BE OF NO CONSEQUENCE. WE DECIDE ACCORDINGLY. ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 10 OF 12 BY FOLLOWING THE ABOVE DECISION OF CO - ORDINATE BENCH AND I N VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A). THE SAME ;IS UPHELD. THE REVENUES APPEAL IS DISMISSED. 7 . IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE DEPARTMENT APPEAL IS BAD IN LAW AS WELL AS ON FACTS AND LIABLE TO BE DISMISSED. 2. BECAUSE THE LEARNED CIT(APPEALS) ERRED IN DISALLOWANCE OF COMPENSATION PAID OF PRIOR PERIOD EXPORT SALES IN SPITE OF KNOWING THAT RESPONDENT FOLLOWING METHOD OF A CCOUNTING FOR THIS EXPENSES AS PAYMENT BASIS CONSISTENTLY THROUGHOUT ALL PREVIOUS YEARS. THE ASSESSEE HAS CLAIMED COMPENSATION OF RS.10,88,152/ - BEING PAID ON ACCOUNT OF DAMAGE OF GOODS EXPORTED. AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROU ND THAT THESE ARE PRIOR PERIOD EXPENSES AND CAN NOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. AO HAS RECORDED REASONS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE EXPENSES WHICH HAVE BEEN INCURRED DURING THE RELEVANT PREVIOUS YE AR CAN ONLY BE ALLOWED. 8 . THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE CIT(A) AND SUBMITTED THAT THE CLAIM OF DAMAGE BY THE PURCHASER HAS BEEN CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. THEREFORE, THIS CLAIM IS ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 11 OF 12 AN ALLOWABLE CLAIM OF T HE ASSESSEE. THE CIT(A) HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE AND HELD THAT SALE REBATE, SALE DISCOUNT, COMPENSATION FOR DAMAGE OF GOODS RELATE TO THE YEAR OF SALE AND NOT TO THE SUBSEQUENT YEAR. THE SAID SALE REBATES ARE NOT DERIVED FROM THE A GENCY CONTRACT BUT ARE DERIVED OUT OF DEFECTIVE GOODS. THEREFORE, THE DISALLOWANCE OF RS.10,88,512/ - ON ACCOUNT OF REBATE ON DEFECTIVE GOODS/COMPENSATION IS ALLOWABLE ONLY IN THE YEAR OF RELEVANT EXPORT. THUS, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE. 9 . WE HAVE HEARD THE LEARNED AR OF THE ASSESSEE AS WELL AS THE LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. EVEN OTHERWISE, AS PER THE ACCOUNTING STANDA RD AS WELL AS PER PROVISIONS OF COMPANIES ACT, THE ASSESSEE IS BOUND TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE HAS CLAIMED SALE REBATE/DAMAGE ON ACCOUNT OF DEFECTIVE GOODS EXPORTED IN THE EARLIER YEAR. IT IS PERTINENT TO NOTE THAT IT IS NOT THE CLAIM OF THE ASSESSEE THAT THE LIABILITY OF DAMAGE HAS BEEN CRYSTALLIZED IN THIS YEAR AND TILL THE YEAR UNDER CONSIDERATION ASSESSEE WAS DISPUTING THE CLAIM OF THE PURCHASER. IT IS ONLY PAYMENT IN RESPECT OF SAME AMOUNT WAS ADJUSTED AGAINST THE P URCHASES RECEIVED IN THE YEAR UNDER CONSIDERATION . THEREFORE, THIS AMOUNT OF DAMAGE IS UNDISPUTEDLY RELATED TO THE EXPORT OF GOODS MADE IN THE EARLIER ASSESSMENT YEAR. ITA NO.5854/ MUM/2013 & CO NO.244/MU/2014 M/S.CITY CAT OVERSEAS CHEMICALS LTD. PAGE 12 OF 12 ACCORDINGLY, WHEN THE ASSESSEE HAS NEVER DISPUTED THE CLAIM OF DAMAGES, THEN THE CLAIM WHICH PERTAINS TO EARLIER YEAR CANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW. 9. IN THE RESULT, THE APPEAL OF T HE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 0 7 TH AUGUST, 2015 . S D / - S D / - (N.K.BILLAIAY) (VIJAY PAL RAO) ACCOUNANT MEMBER JUDICIAL MEMBER EKSRINIVASULU, SR.PS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) MUMBAI 4 CIT 5 DR, ITAT, MUMBAI 6 GUARD FILE BY ORDER A SSISTANT REGISTRAR, INCOME - TAX APPELLATE TRIBUNAL, M U M B A I .