A.C.I.T. - 23(3), MUMBAI V. S. R. BROTHERS, MUMBAI

ITA 6069/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9887 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: VISHWAS V MEHENDALE LD
• Keywords: Gift; Business expenditure; Services rendered outside India; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO. 6069/MUM/2016 ( / ASSESSMENT YEAR: 2012-13) ASSISTANT COMMISSIONER OF INCOME TAX-23(3) MATRU MANDIR, 1 ST FLOOR, R.NO.104, TARDEO ROAD MUMBAI 400 007 / VS. S.R.BROTHERS 204-205, BALARAMA, BANDRA KURLA COMPLEX BANDRA(E) MUMBAI -400 051 ! ./ ./PAN/GIR NO. AAAFS-9880-L ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : VISHWAS V. MEHENDALE, LD.AR REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 16/08/2017 / DATE OF PRONOUNCEMENT : 06 /09/2017 ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012- 13 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-34 [CIT(A)], MUMBAI DATED 29/07/2016 QUA RELIEF PROVIDED TO THE ASSESSEE AGAINST DISALLOWANCE U/S 40(A)(I). 2.1 FACTS LEADING TO THE DISPUTE ARE THAT THE ASSES SEE BEING RESIDENT FIRM ENGAGED AS EXPORTER OF GIFT ARTICLES WAS ASSESSED FOR IMPUGNED AY U/S 143(3) ON 26/02/2015 AT RS.3,53,66,722/- AGAINS T RETURNED INCOME OF RS.2,78,10,756/- FILED BY THE ASSESSEE ON 14/09/201 2. THE ASSESSEE SUFFERED DISALLOWANCE OF RS.71,92,575/- U/S 40(A)(I ) AGAINST CERTAIN FOREIGN COMMISSION PAYMENTS, WHICH ARE THE SOLE SUBJECT MATTER OF THIS APPEAL. 2.2 DURING ASSESSMENT PROCEEDINGS, IT WAS NOTED THA T THE ASSESSEE PAID COMMISSION OF RS.71,92,575/- TO TWO FOREIGN AG ENTS NAMELY ASHOK BELANI & RAJA TRADING CO. AGAINST BOOKING OF ORDERS, APPROVAL OF SAMPLES, RELEASE OF SHIPMENT AND HANDLING OUTSTANDI NG PAYMENTS, AGAINST WHICH NO TDS WAS DEDUCTED U/S 195. THE ASSE SSEE CONTENDED THAT THE PAYMENT WAS MADE TO NON-RESIDENT WHO DID N OT HAVE ANY PE IN INDIA AND THEREFORE, NO TDS WAS DEDUCTIBLE AGAINST THE SAID PAYMENT. HOWEVER, THE LD. AO OPINED THAT THE SAME CONSTITUTE D MANAGERIAL SERVICES IN TERMS OF SECTION 9(1) AND HENCE, CALLED FOR DISALLOWANCE U/S 40(A)(I) SINCE NO TDS WAS DEDUCTED FROM THE SAME AN D NO CERTIFICATE ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 3 ETC. WAS FURNISHED IN TERMS OF SECTION 195(2). WITH OUT PREJUDICE, THE LD. AO OPINED THAT THE ASSESSEE FAILED TO SUBMIT EVIDEN CES REGARDING RECEIPT OF SERVICES AND THEREFORE, THE SAID PAYMENT S WERE NOT ALLOWABLE AS BUSINESS EXPENSES. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME SUCCE SSFULLY BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 29/07/2016 WHE RE THE ASSESSEE CONTENDED THAT THE PAYEES WERE NON-RESIDENT HAVING NO PE IN INDIA AND COMMISSION WAS PAID TO AVAIL SERVICES LIKE PROCUREMENT OF ORDER, SECURING PAYMENT, CLEARING GOODS ETC . WHICH COULD NOT BE TERMED AS TECHNICAL / MANAGERIAL OR PROFESSIONAL SERVICES WITHIN THE MEANING OF SECTION 9(I)(VII). IT WAS FURTHER CONTENDED THAT TH E SINCE THE PAYEES HAD NO PE IN INDIA, THEIR INCOME WAS NOT LIABLE FOR TAX IN I NDIA IN TERMS OF CLAUSE-7 OF TAX TREATY . RELIANCE WAS ALSO PLACED ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. THE LD. CIT(A) FOLLOWING THE DECISION OF TRIBUNAL FOR AY 2009-10, 2010-11 DELETED THE IMPUGNED ADDITIONS, AGAINST WHICH THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIA NCE ON THE STAND OF LD. AO WHEREAS LD. COUNSEL FOR ASSESSEE, AT THE OUTSET, CONTENDED THAT THE ISSUE STOOD IN ASSESSEES FAVOR BY EARLIER DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE, COPIES OF WHICH HA S BEEN PLACED BEFORE US. 5. HEARD AND PERUSED RELEVANT MATERIAL ON RECORD IN CLUDING CITED ORDERS OF THE TRIBUNAL. THE UN-CONTROVERTED FACT A S EMANATING FROM THE RECORD ARE THAT THE REVENUE HAS NOWHERE DISPUTED TH E FACT THAT STATUS OF ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 4 PAYEES WAS NON-RESIDENT WHO DID NOT HAVE ANY PERMANENT ESTABLISHMENT [PE] IN INDIA. THERE IS NO QUARREL / DISPUTE ON THIS PO INT. PROCEEDING FURTHER, WE FIND THAT THE LIABILITY TO D EDUCT TDS AGAINST PAYMENT TO NON-RESIDENT IS GOVERNED BY THE PROVISIO NS OF SECTION 195. WE FURTHER NOTE THAT THE HONBLE SUPREME IN THE CA SE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT [327 ITR 456] HAS HELD THAT IF THE INCOME IS NOT CHARGEABLE TO TAX IN INDIA, THERE IS NO LIABILITY OF TDS U/S 195 OF THE INCOME TAX ACT. THEREFORE, IN ORDER TO D ETERMINE THE APPLICABILITY OF THE PROVISIONS OF SECTION 195, IT IS FIRST ESSENTIAL TO FIND OUT WHETHER THE SUM PAID TO NON- RESIDENTS IS CHARG EABLE TO TAX AS PER THE PROVISIONS OF SECTION 9 OR NOT. IN OTHER WORDS, SECTION 195 SHOULD NOT BE READ TO MEAN THAT THE MOMENT THERE IS A REMITTAN CE, THE OBLIGATION TO DEDUCT TDS WILL ARISE AUTOMATICALLY. 6. WE FIND THAT THE ASSESSEE HAS CONTENDED THAT THE SAID PAYMENTS WERE MADE TOWARDS BOOKING OF ORDERS, APPROVAL OF SAMPLES, RELEASE OF SHIPMENT AND HANDLING OUTSTANDING PAYMENTS WHICH IS ALSO NOT IN DISPUTE. THESE ACTIVITIES, IN OUR OPINION, DO NOT PER SE, AMOUNT TO MANAGERIAL / PROFESSIONAL / TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(I)(VII). THIS VIEW IS FORTIFIED BY THE JU DGMENT OF HONBLE DELHI HIGH COURT RENDERED IN CIT VS. EON TECHNOLOGY (P) LTD. [343 ITR 366] WHERE THE HONBLE COURT AFTER CONSIDERING THE RELEV ANT CBDT CIRCULARS OBSERVED AS UNDER:- 'CIRCULAR NO. 23, DATED JULY 23, 1969 FOREIGN AGENT S OF INDIAN EXPORTERS.- A FOREIGN AGENT OF INDIAN EXPORTER OPERATES IN HIS OWN COUNTR Y AND NO PART OF HIS INCOME ARISES IN INDIA. HIS COMMISSION IS USUALLY REMITTED DIRECTLY TO HIM AND IS, THEREFORE, NOT RECEIVED BY HIM OR ON HIS BEHALF IN INDIA. SUCH AN AGENT IS NOT LIABLE TO INCOME- TAX IN INDIA ON THE COMMISSION. ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 5 CIRCULAR NO. 786, DATED FEBRUARY 7, 2000 AS CLARIFI ED EARLIER IN CIRCULAR NO. 23,DATED JULY 23, 1969, (SEE UNDER SECTION 5) WHERE THE NON- RESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES IN INDIA, AND SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD, IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS WERE, THEREFORE, HELD TO BE NOT TAXABLE IN INDIA. THIS CLARIFICATION STILL PREVAILS. IN VIEW OF THE F ACT THAT THE RELEVANT SECTIONS (SECTION 5(2) AND SECTION 9) HAVE NOT UNDERGONE AND CHANGE I N THIS REGARD. NO TAX IS, THEREFORE, DEDUCTIBLE UNDER SECTION 195 FROM EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO SUCH A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA.' 7. THE LD. AO, IN THE ALTERNATIVE, REJECTED THE CLA IM OF THE ASSESSEE ON THE PREMISES THAT THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE REGARDING RECEIPT OF THE SERVICES AND HENCE, THE SA ME WERE NOT ALLOWABLE TO THE ASSESSEE. HOWEVER, WE FIND THAT TH E ASSESSEE IS ENGAGED IN EXPORT ACTIVITY AND PAYING COMMISSION RE GULARLY SINCE PAST SEVERAL YEARS. THE ASSESSEE ALREADY PROVIDED THE WO RKING OF COMMISSION PAYMENTS PARTY-WISE AND TRANSACTION-WISE WITH DATE OF PAYMENT, WHICH HAS BEEN PRODUCED ON PAGE-12 OF THE QUANTUM ASSESSMENT ORDER. THEREFORE, THE ASSESSEE, IN OUR O PINION, DISCHARGED THE PRIMARY ONUS OF PROVING THE SAME AND THE ONUS W AS ON REVENUE TO CONTROVERT THE SAME WITH FURTHER INVESTIGATIONS / C ONFIRMATIONS. HENCE, WE DO NOT FIND ANY MERIT IN THE SAME. 8. FURTHER, UPON PERUSAL OF TRIBUNAL ORDER ITA NOS. 7772/MUM/2012 & OTHERS DATED 12/12/2015 FOR AY 2009-10 & 2010-11 AND ITA NO. 733/MUM/2015 DATED 28/10/2016 FOR AY 2011-12 REVEAL S THAT THE SAID ISSUE HAS BEEN DECIDED IN ASSESSEES FAVOR BY THIS TRIBUNAL IN THE PRECEDING THREE AYS. 9. THEREFORE, THE ABOVE DISCUSSION / OBSERVATIONS L EAD US TO INEVITABLE CONCLUSION THAT THE COMMISSION PAID BY T HE ASSESSEE, IN THE ITA NO 6069/MUM/2016 S.R.BROTHERS ASSESSMENT YEAR 2012-13 6 FIRST INSTANCE , WAS NOT CHARGEABLE TO TAX IN THE HANDS OF THE PAY EE AND THEREFORE, DID NOT REQUIRE ANY TDS U/S 195. THEREFO RE, WE ARE INCLINED TO DISMISS THE REVENUES APPEAL. 10. RESULTANTLY, THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH SEPTEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06. 09.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. , ( ) / THE CIT(A) 4. , / CIT CONCERNED 5. $'. , . , / DR, ITAT, MUMBAI 6. / / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI