M/s. Kamino International Logistics Pvt. Ltd, New Delhi V. DCIT, New Delhi

ITA 646/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2205 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 16-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 20-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Double taxation relief; Opportunity of being heard; Non-deduction of tax; Set aside
• Section: 143(3); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMEBR AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER I.T.A NO. 646 & 645/DEL./09 ASSESSMENT YEARS - 2005-06 & 2006-07 M/S. KAMINO INTERNATIONAL LOGISTICS PVT. LTD., 139/140 LAL DORA EXTENDED AREA, KAPASHERA, NEW DELHI 110 037. VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5 (1), C.R. BUILDING , NEW DELHI 110 002. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.S. SINGHVI, CA RESPONDENT BY : MS. ANUSHA KHURANA, DR ORDER PER RAJPAL YADAV, JM: THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF ASSESSEE AGAINST THE SEPARATE ORDERS OF EVEN DATE I.E. 2 ND DECEMBER, 2008 PASSED BY LD. CIT(A) IN ASSTT. YEAR 2005-06 AND 2006-07 RESPEC TIVELY. THE DISPUTES RAISED BY THE ASSESSEE IN BOTH THE YEAR ARE COMMON. THEREFORE WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OFF BOTH THE APPEALS TOGETHER. THE FIRST COMMON GRIEVANCE OF THE ASSESSEE IS THAT L D. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY AO WITH THE HELP OF SEC TION 40(A) (I) OF THE ITA NO. 646& 645/DEL/09 2 ACT FOR NOT DEDUCTING THE TAX AT SOURCE AS PER SECTI ON 195 OF THE ACT ON REMITTANCE MADE ABROAD TOWARDS AIR AND SEA FREIGHT. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FILED ITS RETURN OF INCOME ON 27.10.2007 AND 27.11.2006 DECLARING AN IN COME OR RS. 49,36,098/- AND RS. 1,02,35,282/- IN ASSTT. YEARS 2005-06 AND 2 006-07 RESPECTIVELY. THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUS INESS OF FREIGHT FORWARDING AND CUSTOM HOUSE AGENT FOR HANDLING ITS CLIENTS EXPORT AND IMPORT OF CARGO BY AIR AS WELL AS SEA. THE 51% EQUITY SHARE S OF THE ASSESSEE ARE BEING HELD BY KAMINO LIMITED . THE AO ON SCRUTINY OF THE AC COUNTS FOUND THAT ASSESSEE HAS REMITTED THE SUMMONS TO A NON-RESIDENT AND WITHOUT DEDUCTING THE TAX AT SOURCE AS PER SECTION 195 ON SUCH REMITTAN CE. THEREFORE, A DISALLOWANCE U/S 40 (A)(I) OF THE ACT DESERVES TO BE MADE. HE ESTIMATED THE PROFIT ELEMENT ON THE PAYMENT MADE BY THE ASSESSEE @ 7% A ND WORKED OUT THE DISALLOWANCE REQUIRED TO BE MADE U/S 40 (A) (I). 3. LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET POINTED OUT THAT LD. CIT(A) HAS FOLLOWED THE ORDER OF HIS PREDECESSOR IN ASSTT. YEAR 2003-04. THE FIRST APPELLATE AUTHORITY IN ASSTT. YEAR 2003-04 HAS FOLLOW ED THE ORDER IN ASSTT. YEAR 2001-02. AN IDENTICAL ISSUE HAS TRAVELLED UPTO THE T RIBUNAL IN ASTT. YEAR 2001-02 AND 2004-05. THE TRIBUNAL HAS SET ASIDE THIS ISSUE T O THE FILE OF AO FOR READJUDICATION WHICH INCLUDES THE QUANTIFICATION OF PROFIT AMOUNT REMITTED BY THE ASSESSEE TO THE NON-RESIDENT. HE POINTED OUT THA T THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL RENDERED ON 30 TH NOVEMBER, 2009 IN ITA NO. 533/D/2005 AND ITA NO. 3083/DEL/2007 A ND OTHER APPEALS. THE ITA NO. 646& 645/DEL/09 3 LD. DR WAS UNABLE TO CONTROVERT THE CONTENTION OF L D. COUNSEL FOR THE ASSESSEE. 4. WITH THE ASSISTANCE OF LD. REPRESENTATIVE WE HAVE GONE THROUGH THE RECORD CAREFULLY AND FOUND THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF TRIBUNAL IN ASSTT. YE AR 2001-02. THE ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL TO THE FILE OF AO FOR R EADJUDICATION. THE DISCUSSION MADE BY THE TRIBUNAL IN ITS ORDER FOR ASSTT . YEAR 2001-02 READ AS UNDER :- ITA NOS. 177 & 553/DEL/2005 A.Y. 2001-02 3. WE SHALL FIRST TAKE THE APPEALS PERTAINING TO THE A SSESSMENT YEAR 2001- 02. 4. IN THIS ASSESSMENT YEAR, THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL AGAINST THE ORDER DATED 22.11.2004 PASSED BY THE LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE U/S 143(3) OF THE INCOME TAX ACT, 1 961. 5. THE GROUNDS OF APPEAL ORIGINALLY TAKEN BY THE ASSES SEE WERE SUBSEQUENTLY REVISED AND MODIFIED VIDE LETTER FILED O N 23.08.2007. THE CONTENTION OF THE ASSESSEE IS THAT WHILE SUSTAINING THE DISALLOWANCE BY INVOKING SECTION 40(A)(I) OF THE ACT, THE AUTHORITI ES BELOW HAVE NOT TAKEN INTO CONSIDERATION THE EXPLANATION 1(A) TO SECTION 9(1)(I ) AND THE PROVISION OF DTAA WITH UNITED KINGDOM, NETHERLANDS, SWITZERLAND, JAPAN, GERMANY, SOUTH AFRICA AND UNITED STATES OF AMERICA. THE ASSESSEE A LSO CONTENDED THAT ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE FRO M THE PAYMENT MADE TO NON-RESIDENT INASMUCH AS INCOME OF NON-RESIDENT W AS NOT CHARGEABLE TO TAX IN INDIA UNDER THE INCOME TAX ACT AND THIS FACT HAS NOT BEEN CONSIDERED AND DECIDED BY THE AUTHORITIES BELOW. THE LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DOUBT OR DISPUTE OR DEBATE TH AT SECTION 195 ONLY CONTEMPLATES RECEIPTS CHARGEABLE TO TAX UNDER THE INCOME TAX ACT AND THE RECEIPTS OR INCOME WHICH ARE NOT CHARGEABLE TO INCOME T AX CANNOT BE MADE SUBJECT TO TAX DEDUCTIBLE AT SOURCE U/S 195 OF T HE ACT. WHILE DECIDING THE ISSUE WHETHER THE PAYMENT MADE BY THE ASSESSEE TO N ON-RESIDENT ARE CHARGEABLE TO TAX, BOTH THE AUTHORITIES HAVE NOT CON SIDERED THE RELEVANT CLAUSES OF DTAA. HE FURTHER SUBMITTED THAT PROVISIONS OF DTAA WILL OVERRIDE PROVISIONS OF INCOME TAX ACT AND IF THERE IS NO TAX LIABILITIES UNDER VARIOUS CLAUSES OF DTAA, THERE IS NO CASE OF ANY INCOME CHAR GEABLE TO TAX UNDER THE ITA NO. 646& 645/DEL/09 4 PROVISIONS OF INCOME TAX ACT. IN THIS CONNECTION, H E HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) VAE EXCHANGE CENTRE LTD. VS. UNION OF INDIA AN D ANOTHER 313 ITR 94 (DEL) (II) MAHINDRA AND MAHINDRA LTD. VS. DCIT 30 SOT 374 (SPL. BENCH) (III) MAHARASHTRA STATE ELECTRICITY BOARD VS. DCIT 90 ITD 793 (MUMB.) (IV) XELO PLY LTD. VS. DDIT 32 SOT 338 (MUMB). 6. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LOWER AUTHORITIES ERRED IN LAW IN NOT CONSIDERING THE NON -DISCRIMINATION ARTICLES OF DTAA WITH COUNTRIES OF WHICH THE RECIPIENTS ARE TAX RESIDENTS. 7. IN SUPPORT OF THE ASSESSEES CASE, THE ASSESSEE PLA CED RELIANCE UPON THE FOLLOWING DECISIONS ALSO:- (I) TRANSMISSION CORPORATION OF AP LTD. VS. CIT 239 ITR 587 (SC) (II) ISHUKAWAGIMA HEAVY INDUSTRIES LTD. VS. CIT 288 ITR 408 (SC) (III) AB HOTELS LTD. VS. DCIT (DEL) (IV) MILLENNIUM INFOCOM TECHNOLOGIES LTD. VS. DCIT 21 SOT 152 (DEL) 8. THE CIRCULAR NO. 725 DATED 19.09.1995 OF CBDT WA S ALSO RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS DECIDED THE ISSUE REGARDING THE BUSINESS CONNECTION BASED ON AGREEMENT DATED 30.04.1999 WHICH IS OUT OF CONTEXT AS THE SAME IS RELATING TO SHARE OF PROFIT OR APPOINTMENT OF AGENT OR COORDINATION AND CON VENIENCE OF BUSINESS ACTIVITIES AND HAS NO RELEVANCE OR BEARING TO THE BUS INESS ACTIVITIES OF THE ASSESSEE AS FREIGHT AND CUSTOM CLEARING AGENT. 10. HE, THEREFORE, CONCLUDED THAT THE ISSUE ABOUT TH E ASSESSEES OBLIGATION TO DEDUCT TAX AT SOURCE WITHIN THE MEANING OF SECTIO N 195 OF THE ACT HAS NOT BEEN CONSIDERED AND DECIDED UPON BY TAKING INTO ACCOUN T ALL THE FACTS OF THE CASE IN THE LIGHT OF THE RELEVANT CLAUSES OF DT AA AND THE DECIDED CASES. HE SUBMITTED THAT SINCE ALL THE ASPECT OF THE MATTER WA S NOT EVEN EXAMINED BY THE A.O. AND SINCE MATTER HAS BEEN EXAMINED BY THE L D. CIT(A) NOT IN ITS RIGHT AND CORRECT PERSPECTIVE, THE MATTER NEED TO BE FR ESHLY EXAMINED AND ADJUDICATED UPON BY THE A.O. AFTER CONSIDERING ALL TH E FACTS AND ITA NO. 646& 645/DEL/09 5 CIRCUMSTANCES OF THE CASE INCLUDING THE PROVISIONS OF DTAA AND IN THE LIGHT OF THE DECIDED CASES. 11. THE LD. D.R., ON THE OTHER HAND, SUPPORTED THE OR DERS OF THE LD. CIT(A). 12. WE HAVE CONSIDERED RIVAL CONTENTION OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW. 13. IT IS NOT IN DISPUTE THAT THE A.O. HAS DISALLOWE D THE EXPENSES OR PAYMENT ON THE GROUND THAT THE SAME WERE REMITTED BY TH E ASSESSEE WITHOUT DEDUCTION OF TAX AT SOURCE BUT HE HAS NOT REFERRED T O ANY PROVISIONS UNDER WHICH DISALLOWANCE WAS MADE. FROM THE PERUSAL OF ASSE SSMENT ORDER, IT WAS ALSO NOTICED BY THE LD. CIT(A) THAT THE A.O. NEVER RAISED A QUERY WITH REGARD TO NON-DEDUCTION OF TAX AT SOURCE EITHER BY WAY OF A NY QUESTIONNAIRE OR ANY NOTING IN THE ORDER-SHEET. THE LD. CIT(A), THEREFO RE, WAS OF THE VIEW THE ASSESSEE WAS NOT GIVEN ANY OPPORTUNITY BY THE A.O. TO EXPLAIN ITS POSITION WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF THE SE CTION 40(A)(I) OF THE ACT. HOWEVER, THE LD. CIT(A) EXAMINED THE ISSUE BUT IT IS NOTICED BY US THAT ALL THE AGREEMENTS AND RELEVANT PAPERS NEED TO BE EXAMINED AFRE SH BY THE A.O. SO AS TO DETERMINE AS TO WHETHER ANY PAYMENT MADE BY ASSE SSEE TO NON- RESIDENT WAS CHARGEABLE TO TAX UNDER THE INCOME TAX A CT AND IN THAT RESPECT, WHETHER THE ASSESSEE WAS LIABLE TO DEDUCT TA X AT SOURCE. BOTH THE PARTIES HAVE AGREED THAT THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE A.O. WE, THEREFORE, RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR HIS FRESH ADJUDICATION AS TO WHETHER THE ASSESSEE WAS LIABLE T O DEDUCT ANY TAX U/S 195 OF THE ACT IN THE LIGHT OF THE VARIOUS PROVISIONS CO NTAINED IN DTAA AND IN THE LIGHT OF THE DECIDED CASES. THE A.O. SHALL PROVIDE R EASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14. THE ASSESSEE HAS ALSO CONTENDED THAT THE FIGURE OF RS. 91,37,588/- HAS ALSO BEEN TAKEN WRONGLY AND THE ACTUAL AMOUNT OF REMI TTANCES IS ONLY RS. 10,72,599/- . THIS ASPECT OF THE MATTER WAS ALSO TO BE EXAMINED FRESHLY BY THE A.O. WHILE DECIDING THE ISSUE INVOLVED IN THIS APPEAL . 15. NOW, WE COME TO THE APPEAL FILED BY THE REVENUE. 16. IN THE APPEAL FILED BY THE REVENUE, THE REVENUE HAS TAKEN A GROUND THAT THE ITA NO. 646& 645/DEL/09 6 LD. CIT(A) HAS ERRED IN LAW AND IN FACT IN REDUCING THE ADDITION OF RS. 24,04,391/- FOR NON-DEDUCTION OF TAX FROM THE REMITTANCES PAYABLE O UTSIDE INDIA. IN THIS CONNECTION, THE LD. CIT(A) HAS TAKEN A VIEW THAT ON LY THE AMOUNT WHICH IS ATTRIBUTABLE TO THE PORTION CARRIED OUT IN INDIA CA N ONLY BE SUBJECT TO TAX DEDUCTIBLE AT SOURCE U/S 195 OF THE ACT. IN THIS CONNECTION, THE LD. CIT(A) HAS ALLOCATED 7% OF THE GROSS REMITTANCES ON ACCOUNT OF THE FREIGHT AS SUM CHARGEABLE TO TAX IN THE HANDS OF NON-RESIDENT COMPANIES BY VIRTUE OF PROVIS IONS OF SECTION 9(1)(I) READ WITH SECTION 5(2)(B) OF THE INCOME TAX ACT. 17. WE HAVE HEARD BOTH THE PARTIES AND FIND THAT TH E A.O. HAS ALSO ALLOCATED ONLY 7% OF THE TOTAL REMITTANCES AS SUM WHICH IS RE LATABLE TO THE BUSINESS ACTIVITIES IN INDIA IN SUBSEQUENT ASSESSMENT YEARS WITHOUT GIVING ANY RESERVATION TO TAX WHOLE OF THE AMOUNT OF REMITTANCES. THE MAIN ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE A.O. FOR HIS FRESH ADJUDICATION TO DECIDE THE QUEST ION AS TO WHETHER THE ASSESSEE AT ALL LIABLE TO DEDUCT AT SOURCE U/S 195 OF THE ACT. THEREFORE, IN THE EVENT, THE ASSESSEE IS FOUND TO BE LIABLE TO DEDUCT TAX AT SOU RCE, THIS ISSUE HAS NOW BECOME REDUNDANT AND IT IS TO BE DECIDED IN THE LIGHT OF T HE VIEW TAKEN BY THE A.O. IN SUBSEQUENT ASSESSMENT YEARS IN RESPECT OF WHICH THE ASSESSMENTS HAVE BEEN COMPLETED U/S 143(3) OF THE ACT. WE ORDER ACCORDIN GLY. 18. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE A ND REVENUE ARE TREATED TO BE ALLOWED FOR A STATISTICAL PURPOSE. 5. THE ABOVE ORDER OF THE TRIBUNAL DULY COVERED BOTH T HESE ISSUES I.E. WHETHER ANY DISALLOWANCE HAS TO BE MADE U/S 40(A)(I) OR NOT, IF IT IS TO BE MADE THEN HOW IT HAS TO BE QUANTIFIED. RESPECTFULLY FOL LOWING THE ORDER OF THE TRIBUNAL WE ALLOW GROUND NO. 1 IN BOTH THE APPEALS AN D SET ASIDE THE ISSUE TO THE FILE OF AO WITH A DIRECTION THAT HE SHALL READ JUDICATE ISSUES IN THE LIGHT OF THE TRIBUNALS ORDER EXTRACTED SUPRA. 6. IN ASSTT. YEAR 2006-07 THERE IS ONE MORE GROUND W HEREIN ASSESSEE IS IMPUGNING THE DISALLOWANCE OF RS. 1,35,000/- IN RESPE CT OF STAFF TRAINING AND RECRUITMENT EXPENSES. LD. COUNSEL FOR THE ASSESSEE DI D NOT PRESS THIS GROUND OF APPEAL. HENCE IT IS REJECTED. 7. GROUND NO. 2 IN ASSTT YEAR 2005-06 AND GROUND NO . 3 IN ASSTT. YEAR 2006- ITA NO. 646& 645/DEL/09 7 07 ARE GENERAL IN NATURE. THEY DO NOT REQUIRE ANY SPE CIFIC FINDING ON THE ISSUE. HENCE BOTH ARE REJECTED. 8. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON [R.C. SHARMA] [RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY R EGISTRAR, ITAT